Retirement Reform in Budget Excludes ESOPs

Last year, the Presidential Panel on Federal Tax Reform proposed sweeping changes in retirement plan tax benefits. While the proposal did not specifically mention ESOPs, it appeared to eliminate all existing defined contribution plans and replace them with an Employer Retirement Savings Account. When asked, members of the panel said they had not specially discussed ESOPs, leaving some ambiguity about whether these plans would be covered by this reform or only plans focused on employee savings, such as 401(k) plans.

The new Presidential budget makes it clear that the reform would apply only to savings arrangements, including 401(k), SIMPLE, 403(b), 457, and SARSEP plans, but not ESOPs, stock bonus plans, or non-contributory profit sharing plans. ESOPs that are combined with 401(k) plans could be affected, although plans run separately presumably would not be.

Prospects for the reform on this front remain dim, as Congress seems disinclined to make major changes in retirement law after the four-year struggle to craft the Pension Protection Act, as well as substantial industry opposition to the proposal.