IRS Ruling on Voting Rights

Within the next few weeks, the IRS will issue a revenue ruling indicating that trustees can vote shares for which ESOP participants do not provide directions. Under current law, employees must be able to direct the trustee as to the voting of shares allocated to their ESOP accounts on all issues in public companies and on limited issues in private companies. Companies can voluntarily provide for additional voting rights.

Under old regulations for tax credit employee stock ownership plans (TRASOPs), shares for which no directions were received could not be voted by the trustee. In practice in non-TRASOP plans, however, trustees often could do this. In the recent ruling in Polaroid case, a court ruled that the trustee must make an independent decision for these undirected shares, even if the plan document directs the trustee to vote them according to the way allocated shares were voted.

In the new ruling, the IRS says that trustees can in fact vote the undirected shares.