Employee Ownership Blog

California has enacted legislation restoring special ESOP tax benefits for firms in the state.

Burlington Industries, NationsBank, and Morgan Stanley have agreed to pay $8.8 million each to settle a class action lawsuit brought by a group of Burlington employees. After legal fees are deducted, the remaining amount will go into Burlington's ESOP for current and former employees.

The "Back to Small Business Job Protection Act" (the small business tax incentives feature of the Minimum Wage Bill) contains a number of provisions important to employee ownership. The bill has now been passed by the Congress and should be signed in the next few weeks by the President.

Under current law, employee benefit trusts cannot own stock in an S corporation. The new law would change this, effective January 1, 1998, to allow ESOPs, profit sharing plans, stock bonus plans, and 401(k) plans to own stock in their companies.

Section 133 of the Internal Revenue Code allows lenders to exclude up to 50% of the interest income they receive on loans to ESOPs owning more than 50% of a company's shares. This provision is repealed by the new bill, effective when the President signs it.

The new bill makes a number of changes in employee benefit plan law intended to simplify plan operations. The two most significant concern the definition of highly compensated employees and the participation requirements for 401(k) plans.

The new law makes a number of changes that will increase how much can be contributed to employee benefit plans, the most important of which are as follows.

Aside from the Subchapter S and section 133 provisions of H.R. 3448 described in the last update, the small business tax relief bill working its way through Congress contains other important provisions affecting employee ownership as well.

The IRS issued a number of new rulings in the last few months, a few of which were significant.

The Board of Directors of Avis has agreed to sell the company to HFS, Inc., a major franchise operator, for an estimated $800 million. Analysts estimate HFS will pay about $35 per share to buy the company, whose stock was most recently valued at about $12.50.

The Senate has agreed to legislation that would allow Subchapter S companies to have ESOPs.

Legislation introduced by Senate Barbara Boxer (D-CA) would limit the amount of employer stock that could be held in a 401(k) plan to 10% of the amount employees contribute and would require that employees be able to reallocate employer 401(k) matches in the form of company stock to other account