Employee Stock Purchase Plans

[Guest ladler]

Can an employer excludes all collectively bargained employees from an employee stock purchase plan and still qualify under Section 423? The employer will offer this plan to all of its non-union employees.

[david rigby]

It appears that IRC 423 http://www4.law.cornell.edu/uscode/26/423.html

and the regs. thereunder http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

make no disctinction regarding collectively bargained employees. See especially 1.423-2(e).

[Guest hank]

There is an old private letter ruling from IRS where the plan sponsor wanted to exclude collective bargaining unit employees and, before implementing the plan, wanted to take it to its various unions so that each unit could decide whether or not to participate. In those circumstances, IRS stated:

"Section 1.423-2(e)(1) of the regulations provides that a plan otherwise conforming with the requirements of section 423(B)(4) of the Code will not violate the requirements of that section simply because some employees choose not to participate in the offering of stock options. In the instant case, the collective bargaining agents of unions may choose, on behalf of their members, not to participate in the Plan. A decision not to participate will result from the union's review of the specific plan being implemented and will not arise constructively, by waiver, or as a result of language contained in existing collective bargaining agreements or other documents.

Company's Plan, by treating as ineligible the members of collective bargaining units whose unions have chosen not to participate, will not violate the requirements of section 423(B)(4) of the Code. Rather, the union's decision is of the sort anticipated under section 1.423-2(e)(1) of the regulations and

may be honored by the terms of the Plan, provided it results from an actual choice by the union following its review of Company's Plan. "

PLR 8516092

Obviously, the key in those facts was the decision to take it to each bargaining unit to elect whether to participate in the ESPP.

[KIP KRAUS]

Hank:

That’s an interesting PR ruling. However, if the regulations are otherwise silent on the collective bargaining issue as PAX says why would an employer have to open up the plan as an option to bargaining employees in the middle of a contract period? As an example, if the contract period is a 3-year period and the employer wants to offer the plan to salaried employees during the second year of the contract, why would they have to bring it to the union?

As you know there are numerous employee benefit plans that routinely exclude bargaining employees, and unless they become a subject of bargaining the union never gets them. That’s one of the reasons people feel the need to have unions so they can bargain for the benefits they dream up, not what the companies want to offer employees.

Why should this type of plan be any different?

[QDROphile]

Because the applicable statutes are different for qualified plans.

[Guest hank]

Pax -

Most of the plan qualification provisions we all work with more frequently than section 423 do, in fact, explicitly permit a plan sponsor to either exclude collectively bargained employees from participation altogether or not count them when doing testing. Section 423 and its regulations, however, specifically enumerate those employees who may be excluded, and collectively bargained folk are not so enumerated. You might want to compare the PLR I cited in my last post with one from 1988 (PLR 8814028)in which the plan sponsor proposed to amend the ESPP to exclude bargained employees if participation in the ESPP was the subject of good faith bargaining with the union.

In those facts, IRS ruled that the proposed amendment to the ESPP contemplated that any employee who was a member of a bargaining unit could be excluded "merely because his or her terms of employment were the subject of good faith bargaining." IRS then stated that the ESPP, as so amended, would NOT satisfy section 423(B)(4) and the plan would not qaulify as a 423 employee stock purchase plan.

hank

[Guest ladler]

Thank you all for your thoughts on this issue.

[david rigby]

Thanks for the info.

I wonder if this issue has ever been discussed as possible legislative change, or if there have been other examples, such as court cases or NLRB "commentary".

I am troubled by the issue being decided thru PLR's. Seems like the statute could easily address this issue. I might even be happy if the IRS reached a conclusion in a reg., but then you could build a case to say that the silence of the statute and reg is a conclusion.