ESOPs

Court Finds Plan Trustee Could not Act on Knowledge of Breaches
Excerpt:"A federal court in Illinois has ruled that participants of the Antioch Company Employee Stock Ownership Plan are not time-barred from moving forward with their claim that company fiduciaries and GreatBanc Trust Co. breached their duties under [ERISA]."(PLANSPONSOR.com)

Employee Ownership Update for August 31, 2010
NCEO Executive Director Corey Rosen discusses the following: The report of the President's Economic Recovery Advisory Board mentions the possibility of eliminating ESOP'special provisions.'The 2010 NASPP/Deloitte stock plan survey found some decline in broad-based plans, but they are still alive and well. A massive worldwide survey by Kelley Services found that most workers say profit sharing or ownership would motivate them to perform at a higher level. (National Center for Employee Ownership)

ESOP Audits and Voluntary Compliance Programs
An employee stock ownership plan (ESOP), like other qualified retirement plans, must meet various legal requirements. It may be audited by the Internal Revenue Service (IRS) or the U.S. Department of Labor (DOL) to ensure its compliance with the law. Whether or not it is audited, there are voluntary corrective programs that allow the company to correct certain errors without disqualifying the plan. This new publication, written by leading attorneys, discusses all these issues in detail. (National Center for Employee Ownership)

Employee Ownership Update for August 16, 2010
NCEO Executive Director Corey Rosen discusses the following: A survey found a large drop in employee engagement, an important predictor of corporate success. The NCEO is getting more calls from people seeking ESOP distributions or equity rights they were promised. The UK has started privatizing public services. The NCEO now has a list of ESOP companies available. The NCEO seeks input on the site for its 2013 conference and is cosponsoring the Ownership Thinking conference. (National Center for Employee Ownership)

U.S. ESOP Company Database Now Available
The NCEO compiles databases of ESOP companies from data collected by the U.S. Department of Labor. These databases are now available for purchase, either for the entire United States ($400 for members; $600 for non-members) or for a specific region ($125 for members; $200 for non-members). Each database is provided as a spreadsheet in Microsoft Excel format and includes a brief codebook describing the data and how to use it. (National Center for Employee Ownership)

Majority of ESOP Sponsors Offer Additional Retirement Plan
Excerpt:"Approximately 90% of ESOP Association members surveyed reported having retirement savings plans in addition to the ESOP (employee stock ownership plan) including 401(k) plans, pension plans, stock purchase plans, and stock options."(PLANSPONSOR.com)

[Guidance Overview] Handout for Upcoming IRS Phone Forum: Abusive Tax Avoidance Transactions and Emerging Issues
Excerpt:"The Forum will focus on potential abusive schemes and new emerging issues including insurance funded plans, schemes involving defined benefit pension plans, S Corporation ESOP abuses, ROBS compliance issues, reversion and distribution schemes, management company promotions, abuses involving union plans and other issues of concern."(Internal Revenue Service)

Valuation Is Key to Avoiding Problems When Creating an ESOP
Excerpt:"It's important to work with a valuation firm that specializes in ESOPs. There are a number of factors that valuation people will look at, including forward-looking financial analyses that model out what the company will look like with an ESOP."(Smart Business)

Employee Ownership Update for July 29, 2010
NCEO Executive Director Corey Rosen discusses the following: Research shows it's a myth that employees don't stay with employers as long as they used to. An examiner for a bankruptcy court found the solvency opinion in the Tribune ESOP transaction may have involved fraud. It is uncertain whether the new executive compensation rules will really change things. The NCEO is seeking'Don't Do That'stories in the equity compensation field. (National Center for Employee Ownership)

[Guidance Overview] Labor Department Secretary Opposes ERISA Statute of Limitations Argument
Excerpt:"The three-year statute of limitations under [ERISA] kicks off only when someone suing under the law first learns of a fiduciary breach. That was a key argument advanced in a friend of the court brief filed by [the DOL Secretary] urging an Illinois federal judge to throw out a former plan trustee's arguments that the legal time limit could be triggered instead when a fiduciary not directly involved in the suit finds out about potential ERISA wrongdoing."(PLANSPONSOR.com)

The ESOP as an Estate / Retirement Planning Tool
Excerpt:"Employee Stock Ownership Plans (ESOPs) are a more viable alternative than ever as a business succession technique, and one that should be seriously considered by every business owner contemplating retirement."(Fox Rothschild LLP)

Employee Ownership Update for July 15, 2010
NCEO Executive Director Corey Rosen discusses the following: BrightScope.com is a useful Web site that ranks defined contribution plans. People often ask how many U.S. companies fall into the'sweet spot'for ESOPs, and there are many of them. The NCEO is cosponsoring the Ownership Thinking conference, to be held in the Denver area in September. (National Center for Employee Ownership)

Ex-Employee of Defunct Nebraska-Based Bank Files Stock Drop Case
Excerpt:"The complaint alleges that the plan fiduciaries should have known TierOne stock was an imprudent investment before federal regulators took over TierOne and sold its assets last month."(PLANSPONSOR.com)

U.S. Supreme Court to Consider Remedy for Deficient SPD
Excerpt:"To recover benefits based on an inconsistency between an ERISA plan document and summary plan description (SPD), must participants show reliance on the SPD? Is it sufficient to show'likely harm'? Or can participants prevail without any showing of harm? The US Supreme Court will tackle these questions . . . ."(Mercer)

Employee Ownership Update for June 30, 2010
The new British government plans to privatize part or all of its mail service. Academic interest in employee ownership is finally coming of age, as shown at a recent gathering of researchers. A useful article explores the five top trends in equity compensation over the last decade. A new survey finds that information technology workers value shared capitalism highly. The IRS published new regulations on required diversification of employer stock in 401(k) plans and combined ESOP/401(k) plans. (National Center for Employee Ownership)

IRS Handout for the ESOP Update Phone Forum Presentation, June 24, 2010 (PDF)
23 pages. Excerpt:"'Qualified participant'and'Qualified election period'as described in section 401(a)(28)(B) of the Internal Revenue Code, the repurchase of employer security under Section 409(h)(2)(B)(i) and issues related to the transfer of employer security and cash between plan accounts."(U.S. Internal Revenue Service)

Allocation Restrictions Triggered by a Section 1042 Sale to an ESOP
In Nancy Dittmer's latest column on the NCEO Web site, she completes her discussion of Internal Revenue Code Section 409(n) with the third and final installment of'Allocation Restrictions Triggered by a Section 1042 Sale to an ESOP."(National Center for Employee Ownership)

Employee Ownership Update for June 15, 2010
Corey Rosen discusses the following: A review of ESOP and 401(k) plan litigation over the last 20 years found only 141 ESOP cases involving private companies, plus 35 involving public companies. The second-largest employee-owned company in the world is China's Huawei, a provider of telecommunications networks. Four of the 20 winners of the 2010 Top Small Company Workplaces awards are employee-owned. The cost of an NCEO membership would buy you only 12 minutes with an employee ownership lawyer. (National Center for Employee Ownership)

A Look Back at the Weird History of the ESOP
Excerpt:"Despite the fact that ESOPs rely for their justification on economic arguments rejected by mainstream economists, the tax subsidies . . . have left ESOPs a prominent feature, to this day, of the American retirement and tax system."(Social Science Research Network)

ESOP and 401(k) Plan Employer Stock Litigation Review 1990-2010
The NCEO has just released'ESOP and 401(k) Plan Employer Stock Litigation Review 1990-2010,'a 35-page publication that categorizes court decisions in ESOP and 401(k) company stock cases since 1990 and provides brief summaries for the ESOP-related decisions. The page for the publication provides a complete table of contents and excerpts from both the ESOP and 401(k) sections. (National Center for Employee Ownership)

Settlement of Fannie Mae Stock Suit Gets Preliminary Approval
Excerpt:"The settlement covers a class of all current and former participants and beneficiaries of Fannie Mae's Employee Stock Ownership Plan (ESOP) whose individual accounts included investments in Federal National Mortgage Association stock at any time from January 1, 2001, to December 6, 2006."(PLANSPONSOR.com)

New ESOP Fundamentals Course
The NCEO has created a completely new ESOP Fundamentals course to replace its old one. The course is self-paced and has both online and offline components. It is designed for ESOP committees and other ESOP participants as well as for staff at service providers who need a basic primer on the subject. A free online demo is provided. (National Center for Employee Ownership)

Employee Ownership Update for June 1, 2010
NCEO Executive Director Corey Rosen discusses the following: The NCEO has released the 2010 version of its Employee Ownership 100, the 100 largest ESOP and other employee-owned U.S. companies. A new study of worker coops in France finds these companies are as productive as or possibly more productive overall than conventional firms in most industries. The Conservative-Liberal coalition in Britain has endorsed the expansion of employee ownership. The VEOC conference is on June 9. (National Center for Employee Ownership)

The Employee Ownership 100: America's Largest Majority Employee-Owned Companies
The NCEO has just released the latest version of the Employee Ownership 100, a list of the largest majority employee-owned companies in the U.S. To be on the list, companies must have at least 50% of their stock owned by an ESOP, a stock purchase plan in which most full-time employees can participate, a profit sharing plan or other trust, or some combination of such plans. (National Center for Employee Ownership)

[Guidance Overview] ESOP Trustee Cleared of ERISA Wrongdoing
Excerpt:"The trustee of an employee stock ownership plan (ESOP) acted in good faith when it determined the fair market value of company stock, so it did not violate prohibited transaction rules, a judge has determined."(PLANSPONSOR.com)

[Guidance Overview] IRS Final Regulations on Diversification Requirements for Publicly Traded Employer Securities
Excerpt:"EBIA Comment: Most of the changes made by the final regulations were in response to comments on the proposed rule. In addition to the changes discussed, the final regulations contain clarifications for ESOPs and a special transition rule for leveraged ESOPs. The preamble to the final regulations also noted that guidance will be issued for ESOPs that require amendments to comply with the diversification rule and clarified the rule on short-term trading restrictions."(Employee Benefits Institute of America)

Allocation Restrictions Triggered by a Section 1042 Sale to an ESOP
In her latest column on the NCEO's Web site, Nancy Dittmer discusses allocation restrictions triggered by a Section 1042 sale to an ESOP. (National Center for Employee Ownership)

Employee Ownership Update for May 14, 2010
NCEO Executive Director Corey Rosen reports on the following: The IRS is going to require ESOP companies to submit written distribution policies. The'Employee Stock Ownership Plan Promotion and Improvement Act of 2010'has been introduced in the U.S. House of Representatives. PBS NewsHour did a followup story on ESOP-owned SRC Holdings, showing how open-book management allowed it to grow and then survive the recession without a layoff despite a significant reliance on the automotive industry. (National Center for Employee Ownership)

New Bill Would Add ESOP Tax Boosts
Excerpt:"A news release from U.S. Representatives Earl Pomeroy (D-North Dakota) and Charles Boustany (R-Louisiana) said The Employee Stock Ownership Plan Promotion and Improvement Act, H.R. 5207, was designed to remove obstacles to employee ownership of companies."(PLANSPONSOR.com)

Ownership Transitions: ESOPs Compared to Other Strategies
In a new article on the NCEO's Web site, Kelly Finnell discusses the three traditional ownership transition strategies and compares them to an employee stock ownership plan (ESOP). (National Center for Employee Ownership)

New NCEO Issue Brief on ESOP Distribution Policies
Until 2010, the IRS reviewed ESOP plan documents simply to assure that the maximum payout terms were specified. Now, however, the IRS wants to see the actual distribution policy, whether in the plan or as a separate document. This issue brief provides sample language and detailed commentary to help you create such a policy. (National Center for Employee Ownership (NCEO))

Employee Ownership Update for May 3, 2010
NCEO Executive Director Corey Rosen discusses: The British Conservative Party called for more employee ownership. The IRS may issue preapproved ESOP plan language. SharesPost will work with brokers to facilitate purchases of stock or options from private company employees. The NCEO is assembling a resource on wellness and health insurance programs. The NCEO annual conference had a record attendance, and Loren Rodgers will be the new executive director. The Smiley Fellowship winner was announced. (National Center for Employee Ownership)

Career Advice for the New(er) ERISA Lawyer
Excerpt:"Here are some tips: . . . Stay Current . . . Network . . . Master a Hot Topic . . . Never publish anything only once . . . Invite yourself to the party . . . Get a Life."(BNA Pension and Benefits Blog)

Employee Ownership Update for April 14, 2010
NCEO Executive Director Corey Rosen discusses the following in the latest Employee Ownership Update: The White House's 2011 budget estimates a $1.7 billion tax cost for ESOPs this year. Broad-based employee ownership is alive and well in 2010. French companies with employee-elected directors perform better. An alternative to a more formal board of directors is to create a board of advisors. (National Center for Employee Ownership)

[Guidance Overview] Employee Stock Ownership Plans: Diversification Myths and Misunderstandings
Excerpt:"[F]ailing to comply with the diversification requirements can result in a fiduciary breach and cost the ESOP its tax qualified status. A better understanding and monitoring of the rules can help avoid these pitfalls. A good start toward that understanding is a look at the five myths surrounding ESOP diversification. But first a little background."(Chang, Ruthenberg&Long PC)

[Guidance Overview] Fiduciary Duties in ESOP Refinancing
Excerpt:"[A] refinancing, no matter what the reason, must be agreed to between the ESOP trustee and the lenders and guarantors (if any) of the ESOP debt, which may include the selling shareholder, the company or a bank. This article identifies the seldom discussed yet appropriate factors under ERISA and trust law for fiduciaries to consider when refinancing an ESOP."(Chang, Ruthenberg&Long PC)

Updated Issue Brief on the State of Employee Ownership
The NCEO has posted excerpts from its updated issue brief on the state of employee ownership in the U.S. This report details the extent and growth of employee ownership through ESOPs, 401(k) plans, stock options, ESPPs, and other vehicles; summarizes the leading research on employee ownership and corporate performance; and discusses current challenges and prospects. (National Center for Employee Ownership)

New book: Don't Do That
The new book Don't Do That illustrates common mistakes in implementing and operating an employee stock ownership plan (ESOP) and what to do about them by using a variety of real-life stories contributed by prominent members of the ESOP community. (National Center for Employee Ownership)

Employee Ownership Update for March 31, 2010
NCEO Executive Director Corey Rosen discusses the following: The NCEO has released new estimates on the number of ESOPs and ESOP participants. H.R. 4213 ties equity compensation to pension funding. A new study shows S corporation ESOP companies performed far better than the rest of the economy in 2008. A new blog provides information on Senator Sanders'bills to promote ESOPs. A 2009 article highlighted the growth of an employee ownership-friendly conservatism in Britain. (National Center for Employee Ownership)

Employee Ownership of Companies on the Rise
Excerpt:"Since 1975, the number of employee-owned companies in the United States has grown from 1,600 to more than 11,000; they now represent about 12 percent of the private-sector workforce. Some proponents think they'll grow even more this decade."(The Christian Science Monitor)

[Guidance Overview] Payments by Employer to Redeem Stock Held by ESOP Were Not Deductible As Dividends
Excerpt:"An employer could not deduct cash distribution redemptive dividends paid to participants under an employee stock ownership plan (ESOP), the U.S. Court of Appeals in St. Louis (CA-8) has ruled in Nestle Purina Petcare Co. v. Commissioner."(Wolters Kluwer)

ESOPs on the Rise Among Small Businesses
Excerpt:"While ESOPs are costly to establish and operate, they have gained in popularity during the recession, says Jude Anne Carluccio, a partner in the Minneapolis law office of Barnes&Thornburg and chairwoman of the firm's ESOP Practice Group.'I've been running this ESOP practice for 14 years, and I have never been as busy as recently,'she says."(BusinessWeek)

[Guidance Overview] Court Dismisses Most Claims in State Street Stock Suit
Excerpt:"A federal court has dismissed most claims against State Street Corporation and its retirement plan fiduciaries regarding the offering of company stock as an investment in its Employee Stock Ownership Plan."(PLANSPONSOR.com)

Employee Ownership Update for March 16, 2010
NCEO Executive Director Corey Rosen discusses the following in the latest Employee Ownership Update: A recent court case and an IRS ruling support ESOP account segregation and rebalancing. A settlement has been reached between the former ESOP participants, the Department of Labor, and the defendants in the long-running Couturier case. The NCEO now has made available its list of companies with ESPPs and other broad-based equity plans. (National Center for Employee Ownership)

Court Moves Forward Claims against Northern Trust over ESOP
Excerpt:"A federal court judge has moved forward claims by a participant in the Northern Trust Company Thrift Incentive Plan that plan fiduciaries breached their duties by continuing to offer company stock as an investment when it was no longer prudent to do so."(PLANSPONSOR.com)

DOL Recovers More Than $12M for ESOP Participants at California Company
Excerpt:"The U.S. Department of Labor has obtained consent judgments providing for restitution of more than $12 million by plan officials and service providers involved with the employee stock ownership plan sponsored by The Employee Ownership Holding Co. of Stockton, California, and Fife, Washington."(PLANSPONSOR.com)

[Guidance Overview] Courts and IRS Weigh in on Mandatory Conversion of Terminated Participants'ESOP Accounts (PDF)
5 pages. Excerpt:"Plan sponsors of employee stock ownership plans (ESOPs) that have been submitted for a favorable determination letter know that the IRS is carefully reviewing plan provisions that provide for themandatory conversion of a terminated participant's ESOP account balance from employer securities to cash. Recent case law and IRS analysis provide a hopeful resolution that should allow ESOPs to retain this right, providing that newly articulated requirements are met."(Morgan, Lewis&Bockius LLP)

DOL Sues ESOP Trustee Over Stock Purchase, Alleges Trustee Paid Too Much
Excerpt:"[T]he lawsuit alleges that [the ESOP plan's] trustee . . . caused the ESOP to purchase 40,000 shares of non-voting convertible preferred company stock for $4 million on the basis of valuation reports and fairness opinions he knew or should have known were flawed. . . . [T]he company ceased operations and preferred stock purchased by the ESOP 21 months earlier became worthless, according to the news release."(PLANSPONSOR)

[Guidance Overview] Forcing Terminated ESOP Participants Out of Company Stock Did Not Violate ERISA
Excerpt:"Chief Judge Ralph R. Erickson said in his opinion that an employer offering a plan which provides terminating participants a single sum distribution in employer stock'may modify the plan to provide the equivalent distribution in cash without violation of the anti-cutback provisions'of ERISA."(PLANSPONSOR)

Employee Ownership Update for March 1, 2010
NCEO Executive Director Corey Rosen discusses the following: The UK's Conservative Party is proposing that employees in any public service organization be able to reorganize as an employee-owned company. The NCEO is preparing data on options, ESPPs, etc., in large public companies. ABC News ran a moving story on a new ESOP at Bob's Red Mill. The FED is sponsoring an essay contest on employee ownership. Dan Janich and Elizabeth Dodge have been appointed to the NCEO board. (National Center for Employee Ownership)

Preliminary Approval in Trust Company Settlement of California Class Action
Excerpt:"On January 22, 2010, The United States District Court for the Northern District of California granted preliminary approval for a partial settlement of $15 million in a class action on behalf of participants in and beneficiaries of the Employee Stock Ownership Plan ('ESOP') of K-M Industries Holding Co., Inc. . . . . The case, Fernandez et al. v. K-M Industries Holding Co., Inc. et al., Case No. C 06-07339 (CW), is pending in U.S. district court in Oakland, CA."(Lewis, Feinberg, Lee, Renaker and Jackson PC)

[Guidance Overview] Eighth Circuit Denies Deduction for Company Cash Payments Used to Redeem ESOP Stock and Pay Out Participants
Excerpt:"In Nestl? Purina Petcare Co. v. Commissioner of Internal Revenue, No. 09-1381 (8th Cir. 2010), the Nestl? Purina Petcare Company, known as'Ralston'during the relevant years, had established an employee stock ownership plan (an'ESOP'). A trust held the ESOP's assets, which consisted primarily of Ralston preferred stock. When a participant left Ralston, the participant was required to direct the ESOP to convert the value of the preferred stock allocated to his or her ESOP account into cash, shares of Ralston common stock, or a combination of both."(Stanley D. Baum of Fellheimer&Eichen LLP)

Employee Ownership Update for February 15, 2010
NCEO Executive Director Corey Rosen discusses the following: President Obama's budget proposal would reinstate capital gains rates at 20%, which could make ESOPs more attractive. The Obama budget also proposes a permanent fix that would index the AMT each year for inflation. Labor Secretary Hilda Solis has filed an amicus brief in a controversial case involving company stock in Citigroup's 401(k) plan. The NCEO's board elections are over. The Gathering of the Games meeting will be in May. (National Center for Employee Ownership)

Allocation Methods for ESOP Activity
In her latest column on the NCEO's Web site, Nancy Dittmer discusses how the various items of contribution, income, and so on are allocated among participants'accounts within an ESOP. (National Center for Employee Ownership)

New Edition of ESOPs and Corporate Governance
The NCEO has just released the third edition of its book ESOPs and Corporate Governance, which was written to help ESOP companies think through their governance issues. An important chapter details a survey on ESOP company governance practices. Other chapters address how to select trustees, legal obligations of trustees, best practices for boards (with an eye to concepts established by Sarbanes-Oxley), issues when employees are fiduciaries, and special legal considerations for ESOP companies. (National Center for Employee Ownership)

[Guidance Overview] When Representations Regarding the Financial Condition of the Plan Sponsor Become Actionable Under ERISA
Excerpt:"The U.S. District Court for the Northern District of California ruled in December 2009 that statements made by an officer of Delta Star, Inc. . . . regarding the financial condition and anticipated performance of the Company, which was also the plan sponsor of the Delta Star, Inc. Employee Stock Ownership Plan (ESOP), were sufficiently connected to benefits payable under the ESOP so as to be actionable as a fiduciary breach under ERISA."(Morgan Lewis)

[Guidance Overview] ESOP Litigation: Omitting or Providing Misleading Financial Information to Participants
Excerpt:"In Balsley v. Delta Star Employee Stock Ownership Plan, N.D. Cal., No. C09-2952 TEH, 12/10/09, a federal court found that an ESOP participant can pursue a claim that a plan fiduciary breached their fiduciary duties by omitting financial information . . . ."(The One-Stop ESOP Blog)

[Guidance Overview] PowerPoint Presentation: ESOP Hot Topics and Innovative Transactions (PDF)
41 pages. Presented at the ESOP Association Mid-Atlantic Chapter Meeting. (Morgan, Lewis&Bockius LLP)

Making ESOP Debt Payments with Dividends or S Corporation Distributions
In her latest column on the NCEO Web site, ESOP expert Nancy Dittmer discusses making employee stock ownership plan (ESOP) debt payments with dividends or S corporation distributions. (National Center for Employee Ownership)

Employee Ownership Update for January 15, 2010
Corey Rosen discusses the following: Promoters are offering to install ERSOPs (employee retirement stock ownership plans) at a low cost, but you should get a second opinion. A bill would exclude from gross income compensation received by employees in the form of employer stock held for at least 10 years. Some object to recent stock option repricings. The change in basis step-up rules for 2010 has implications for the estates of those who sold to an ESOP and elected the Section 1042 tax deferral. (National Center for Employee Ownership)