Employee Ownership Blog

A new study of the Wall Street Journal 350 by William M. Mercer shows that 10.6% of these large companies have broad stock option plans to which they either have made allocations or will this year.

One of the most remarkable people in the employee ownership community is Fred Braun. Braun has bought four companies over the last 17 years, three of which were in bankruptcy.

The Taxpayer Relief Act of 1997 (the "Act"), reported on in the previous installment of this column and now about to be signed into law, contains provisions affecting employee ownership plans.

The Act corrects a number of defects in the 1996 tax act's provisions concerning subchapter S corporations and ESOPs. The previous law allowed employee benefit plan trusts to hold stock in an S corporation starting in 1998, but, as structured, made it impractical to do so.

Congress sometimes passes legislation that appears to be general in scope, but really is meant mostly for a single company.

The Act includes language that prohibits sponsors of 401(k) plans from requiring employees to invest in employer stock if the employee deferral part of the plan is 10% or more invested in company stock. The employer contribution part can be entirely in stock, however.

The New Figures

Both the House and Senate versions of the Revenue Reconciliation Act of 1997 contain provisions affecting employee ownership law.

Congress sometimes passes legislation that appears to be general in scope, but really is meant mostly for a single company.

The House version includes a provision that prevents employers who sponsor 401(k) plans from requiring employees to invest their elective deferrals in company stock if the plan has 10% or more of its total assets in company stock.

A "Sense of the Senate" resolution in the Senate version called for hearings on whether companies should be allowed to deduct the spread on stock options when they are exercised if the company does not account for stock option costs on its income statement.

Legislation that would treat Subchapter S corporation ESOPs the same as C corporation ESOPs has been introduced in the House and the Senate. Both bills would also add other incentives to ESOPs.