The June 30, 2010 Employee Ownership Update is online and discusses the following:

• Royal Mail Employees to Get a Share of Company
• Academic Interest in Employee Ownership Blossoms
• Article Explores Top Five Trends in Equity Compensation
• Tech Employees Rate Shared Capitalism as Key Benefit
• New Rules on Employer Stock Diversification in 401(k) and KSOP Plans

The Update provides a recap of the Final IRC Section 401(a)(35) Diversification Regulations, noting that stand-alone ESOPs are exempt from the rules:

Under the law, a participant's right to invest in or divest employer securities cannot be any more restricted than it is for any other plan investment options. However, the final regulations modify some of the permitted restrictions. According to the IRS:

• A plan may allow transfers to and from stable value funds and out of qualified default investment alternatives more frequently than a fund invested in employer securities.
  
• Under the law, a plan may prohibit further investments in an employer stock fund, thereby "freezing" it. The regulations clarify that if employees are reinvesting Section 404(k) dividends on employer stock, the employer stock fund would still be considered frozen.
  
• Under a transitional rule, leveraged ESOPs that acquired stock in a plan year beginning before January 1, 2007, may allocate such stock as matching contributions to a frozen employer stock fund.

The IRS notes that the final regulations also:

• do not treat a multiemployer plan as holding employer securities if they are held indirectly through an investment fund managed by an independent investment manager and do not exceed 10% of the fund;
  
• extend the types of allowed investment companies to include certain exchange traded funds;
  
• state that in determining whether the value of employer securities exceeds 10% of the fund's investment's total value for a plan year, the value at the end of the preceding plan year should be used; and
  
• provide that if a fund that indirectly holds employer securities does not meet the "independent of the employer" requirement, it meets the diversification requirements even if the plan does not offer diversification rights to the participants for up to 90 days after it is found to hold employer securities.

In the preamble, the IRS states that an ESOP that presently has a diversification option under Section 401(a)(28) will not violate anti-cutback rules by eliminating this option in favor of the more favorable (to employees) diversification provisions of the Pension Protection Act.

The Update discussed some of the findings discussed in last week's Beyster Fellowship Symposium, which was a gathering of researchers to explore employee ownership and other topics:

"One of the observations from his research is that there is evidence that the companies that have employee ownership and related practices had improved their performance in terms of employee turnover. Among the 100 Best Companies to Work For in America, the consensus of this new research was that employee ownership made a big difference. Looking around the country, those shareholder rights groups who objected were usually opposed because of the dilution caused as a result of widespread employee ownership. But among leading technology companies with broad-based employee ownership it seems that most shareholder participants were quite happy with the impact employee ownership had."

It also discusses the Employee ownership plan for Royal Mail.