In 1996 legacy owner Frank Sands felt like the company needed to make another big change. In a move to avoid the classic model of union-management relations in which a union must protect the workers against a management drive solely to maximize value to the owners, papers were drawn up to sell the 200-year-old company to its staff. Revenues at the time were $14.5 million.

Our post on a recent Technical Advice Memorandum (TAM) shared some best practices when making share distributions. It also discussed the put option (participant's right to demand a stock distribution) and the net unrealized appreciation (NUA) tax benefits of making share distributions.

A review of existing research on ESOPs found that, in addition to the equity benefits of the ESOP, overall wages of employees of ESOP companies are "at least as high as—and may be higher than" the wages of their non-ESOP counterparts. Steven Freeman of the University of Pennsylvania asserts that this "may partly reflect higher average productivity levels in employee ownership companies, the use of high wages in combination with employee ownership to motivate workers, the influence of workers in setting wages, or beneficence on the part of management that adopts ESOPs."

H. Con. Res. 204: Expressing continued support for employee stock ownership plans was introduced on September 22, 2009, by Rep. Maurice Hinchey [D-NY22] and co-sponsored by Eric Cantor [R-VA7], Howard Coble [R-NC6], Walter Jones [R-NC3], Dana Rohrabacher [R-CA46], Edward Royce [R-CA40], and Mark Souder [R-IN3]. It has been referred to the House Committee on Education and Labor. The ESOP Association supports the bill:

The DOL has published new guidance to help service providers comply with the new Schedule C reporting requirements effective for plans beginning on or after January 1, 2009: EBSA issues additional guidance on 2009 Form 5500 Schedule C

• The plan document generally must be amended to account for how you are treating 2009 RMDs. However, the amendment is generally not required to be adopted until the last day of plan year beginning in 2011.
  
  
• The Notice provides two sample amendments that can be used or modified to meet your particular RMD procedures. The two sample amendments provide that participants can 1) "default to continue 2009 RMDs" or 2) "default to discontinue 2009 RMDs".
  
  
• You will need to choose whether participants have to elect to receive a 2009 RMD or whether they will need to elect NOT to receive one.
  
• You will need to choose one of the following options about whether or not 2009 RMDs are eligible for rollover:
  
  
  • 2009 RMDs are eligible for rollover (generally subject to mandatory 20% federal withholding if the amount is not rolled over per IRC Section 3405 - Special rules for pensions, annuities, and certain other deferred income)
    
    
  • 2009 RMDs are eligible for rollover (generally subject to mandatory 20% federal withholding if the amount is not rolled over per IRC Section 3405 - Special rules for pensions, annuities, and certain other deferred income) ONLY if paid with an additional amount that is an eligible rollover distribution.
    
    
  • 2009 RMDs are NOT eligible for rollover (generally subject to voluntary 10% federal withholding if the amount is not rolled over per IRC Section 3405 - Special rules for pensions, annuities, and certain other deferred income)
    
    
• If a participant has already received a 2009 RMD, the Notice provides that the participants have until the later of November 30, 2009 or 60 days after the date the distribution was received to roll it over.
  
  
• 2009 distributions are considered to first consist of prior unpaid RMDs and then 2009 RMDs.

Here is some background information on RMDs:

Yesterday the Employee Ownership Blog discussed how an Influential Tax Journal Features Respected ERISA Expert Saying "Kill ESOPs".

IRC Section 402(f) - Written explanation to recipients of distributions eligible for rollover treatment requires that a plan administrator provide a participant receiving an eligible rollover distribution with a written notice of tax treatment between 30 and 180 days before a distribution (the minimum 30-day period can be waived):

Many of you are 100% S Corporation ESOPs and are not subject to federal or state income taxation. Others are C Corporations or have less than 100% ESOP structures that may make you subject to federal income taxes. Whether or not you pay income taxes, you likely file tax and/or information returns with the IRS each year (including IRS Form 5500 for your ESOP) and you are subject to tax risk.

The October 16, 2009 Employee Ownership Update is online and discusses the following:

10 Company-Building Lessons Learned by a Successful Entrepreneur (Plus 2 Bonus Lessons) shares some best practices for building an enterprise:

The IRS has announced the 2010 pension plan limits, including the following:

Yesterday we discussed the Reasons for Selling an ESOP Company and the importance of identifying your long-term ESOP objectives. What are your long-term ESOP objectives? While every company will have a slightly different long-term ESOP objective, they are likely to fall into one of three categories. Each category has different repurchase obligation planning and fiduciary implications for both the plan sponsor and the plan trustees:

Last week I participated in a conference on handling the ESOP repurchase obligation. I am going to discuss a couple of takeaways from my presentation.

Last week we noted that the DOL said that ESOPs are a priority in a recent speech and referenced one of our most read posts on What a DOL Auditor is Looking For When Auditing an ESOP. New Guidance on Department of Labor Enforcement Priorities for Employee Benefits discusses another recent DOL speech that detailed the new criminal and civil enforcement priorities of the DOL. The criminal projects include embezzlement of plan assets and Filing a False IRS Form 5500. The article stressed four enforcement efforts:

We summarized the importance of having clear, concise, and consistent written plan terms and administrative procedures in ESOP Planning 2008: Plan Documents and Disclosures, including making sure the terms of all your plan documents are consistent, ensuring the plan is being administered consistent with the written plan documents, and ensuring all plan provisions and administrative procedures are documented appropriately. Written Plan Requirement Defeats Breach Of Fiduciary Duty Claims discusses how Ladouceur v. Credit Lyonnais, No. 07-4040 (2d Cir. Sep. 30, 2009) found that verbal promises cannot change the written terms of the plan. The case cites 29 U.S.C. Section 1102(a)(1) – Establishment of plan – Named fiduciaries:

In Employee Ownership Month 2009 we discussed how October is Employee Ownership Month (EOM) and how October would be here before we knew it. Well, it is here! Our 2008 Employee Ownership Month (EOM) information page contains a lot of great ideas and resources and we will be sharing more ideas throughout the month.

Revenues Hold, Turnover Lower Among 2009 Top Small Workplaces looks at the trends of the Top Small Workplaces 2009 winners and notes that revenues have remained steady, even in the current economic environment, while average turnover fell: