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ESOP and 401(k) Plan Employer Stock Litigation Review 1990-2012
(Print Version)
by Corey Rosen
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This updated 48-page publication categorizes court decisions in ESOP and 401(k) company stock cases from 1990 through mid-2012 and provides brief summaries for the ESOP-related decisions and, starting in 2010, most 401(k) cases. The cases are categorized by the kind of decision reached; cases where multiple issues were decided appear in multiple sections. The cases summarized are primarily those that appeared in the NCEO's Journal of Employee Ownership Law and Finance and Employee Ownership Report, but also include others found through online sources. Over 300 decisions are included, including over three dozen new cases added since the 2011 edition. We have tried to be comprehensive, but advisors must always supplement this with their own research.
You also may be interested in our related publication ESOP Regulatory Rulings 1990-2012, which provides a summary of rulings and regulations on ESOPs and related plans.
You also may be interested in our related publication ESOP Regulatory Rulings 1990-2012, which provides a summary of rulings and regulations on ESOPs and related plans.
Publication Details
Format: Photocopied, 48 pages
Publication date: August 2012
Status: In stock
Contents
- Introduction
- Summary of ESOP Case Decisions
- ESOP Cases
- Claims Against Providers
- Deferral of Gains Issues
- Disclosure of Information
- Distribution
- Dividends
- Employment Rights and Plan Eligibility Issues
- ESOPs as a Takeover Defense
- Executive Compensation
- Indemnification and Insurance
- Lenders as Fiduciaries
- Management of Plan Assets: General
- Management of Plan Assets: "Stock Drop" Cases
- Party-in-Interest Definitions
- S Corporation Anti-Abuse Rules
- Securities Law Issues Other Than Disclosure
- Settlements
- Standing
- State Law Claims
- Valuation
- Venue
- Voting, Tendering Rights, and ESOP Governance Rights
- Who Is a Fiduciary?
- 401(k) Cases
- Issues with Offering and Holding Company Stock Other than Presumption of Prudence
- Presumption of Prudence Issues
- Securities Law and Required Disclosure Issues: Disclosure May Be Required
- Securities Law and Required Disclosure Issues: Disclosure May Not Be Required
- Settlements
- Standing Affirmed for Former Participants
- Standing Not Affirmed for Former Participants
- Other Standing and Class Certification Issues
- Who Is a Fiduciary?
Excerpts
From "ESOP Cases: Dividends"
Illinois Cereal Mills, Inc. v. U.S., 105 T.C. 16 (1995): A tax court ruled that deductible dividends paid by the company to its ESOP to repay a loan were subject to the Alternative Minimum Tax.Snap-Drape Inc v. Commissioner of Internal Revenue, 98 F.3d 194 (5th Cir. 1996): Ruled that dividends paid on ESOP shares are not deductible in computing a company's Alternative Minimum Tax obligation.
Steel Balls, Inc. v. Commissioner, 69 TCM (June 15, 1995): The court recharacterized ESOP dividends as compensation and, as a result, in violation of Section 415 rules. The facts of the case were egregious, but showed the IRS could assess the reasonableness of dividends claimed as deductions. If you do something egregious, we would urge, don't call your company Steel Balls.
Schuler Industries, Inc. v. United States, 109 F.3d 753 (1997): Upheld Treasury Regulation Section 1.56(g)-1(d)(3)(iii)(E) that dividends paid on ESOP shares are subject to the Alternative Minimum Tax.
Boise Cascade Corporation v. United States of America, 329 F.3d 751 (9th Cir. 2003): Ruled that distributions made to former ESOP participants were deductible as dividends, affirming the ruling of a 1998 magistrate's judge for the U.S. District of Idaho's ruling. The IRS subsequently issued guidance saying that it would contest the ruling in other jurisdictions, which it has done successfully.
International Assn. of Machinists v. Northwest Airlines Corp., N.Y. Sup. Ct., No. 602476/03 (Mar. 22, 2005): Ruled Northwest breached its contract with the Machinists by not repurchasing a special class of preferred stock issued to employees in return for wage concessions.
Chrysler Corporation v. Commissioner, 436 F.3d 644 (6th Cir. 2006): Affirmed tax court ruling that distributions to former participants did not qualify as deductible dividends.
ConopCo Inc. v. United States, 572 F.3d 162 (3rd Cir. July 29, 2009): Ruled that distributions to former participants are not deductible as Section 404(k) dividends.
General Mills Inc. v. United States, No. 08-1638 (8th Cir. Jan. 26, 2010): Reversed district court ruling that an ESOP distribution was a redemptive dividend deductible under 404(k).
Nestle Purina Petcare Co. v. Commissioner, No. 09-1339 (U.S., cert. denied Oct. 4, 2010): The Supreme Court refused to review Nestle Purina's claim (rejected at the circuit court level) that distributions to ESOP participants should be deductible under Code Section 404(k) as ESOP dividends.
