Employee Ownership Blog

Several recent IRS announcements provide important guidance on the tax treatment of stock options and ESOPs. They are summarized below. For complete information, go to the IRS web site (www.IRS.gov) and search for the relevant material.

President Bush weighed in on the company stock in retirement plan issue with a moderate proposal apparently limited to 401(k) plans (legislative details are not available). The main provisions are:

The maximum amount that can be added to an employee's account for all defined contribution plan contributions has been increased from $30,000 per year to $35,000. The increase is based on an indexing formula that came into effect for the first time this year.

For the last few years, the IRS has been raising the issue of whether companies should be withholding taxes on gains made from employee exercises of incentive stock options when there is a disqualifying disposition and on employee purchases of stock in an employee stock purchase plan.

New rules for Summary Plan Descriptions for all ERISA plans require more complete and specific disclosure about plan provisions. While much of the new rule focuses on health plans, ESOPs, pension plans, stock bonus plans, 401(k) plans, and welfare benefit plans are covered as well.

The election has brought in a very different set of key players to the employee ownership political process.

New data from the Bureau of Labor Statistics (BLS) indicate that 1.7% of the U.S.'s 105.8 million nonfarm, private sector employees got a stock option grant in 1999. However, the same report finds that 5.3% of employees in companies listed on stock exchanges received options that year.

The "Comprehensive Retirement Security and Pension Reform Act of 2000" (H.R.

The Employer-Employee Relations Subcommittee of the House Committee on Education and the Workforce approved by voice vote HR 3462, the "Wealth Through the Workplace Act." The bill, introduced by John Boehner (R-OH) with bipartisan support, would create a new type of stock option that would combin

While Congress has shown a propensity to move very quickly on options legislation (witness the Boehner bill and the rapid passage of legislation to exempt options pay from overtime compensation rules), it is moving more deliberately on ESOPs.

Both labor and management have agreed that the United's ESOP, which now owns 55% of the shares, will receive no further contributions after this year.

The bill to amend the Fair Labor Standards Act to clarify that option awards do not constitute compensation for overtime calculation purposes is now on a very fast track. The "Worker Economic Opportunity Act" has been endorsed by the Administration and leaders of both parties.