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The Employee Ownership Update

Corey Rosen

January 26, 2001

(Corey Rosen)

Annual Addition Maximum Increased for Defined Contribution Plans

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.

IRS to Hold Off on ESPP and Options Withholding Rule

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. Under current rules, companies do not withhold taxes. Now the IRS has said (in Notice 2001-14) that it will put the issue on hold for two years while it seeks comments.

New Summary Plan Description Rules Require More Detail

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. Areas covered include qualified domestic relations orders, explaining the difference between eligibility and vesting, and plan termination rules. The rules were issued November 20th (27 BBR 2923, 11/28/) and are effective for the first day of the second plan year beginning on or after 1/20/01.

New Players in Employee Ownership Political Landscape

The election has brought in a very different set of key players to the employee ownership political process. President Bush is not on record on the issue, but strongly favors changes in the Alternative Minimum Tax, is likely to favor increased limits for defined contribution plans, and generally will be favorable to tax initiatives supported by the business community. The President's own tax cut proposals, however, could limit the amount of money available for some of the more ambitious proposals for changing limits on defined contribution plans.

In Congress, the new Ways and Means Committee chair is William Thomas (R-CA); his Senate Finance Committee counterpart is Charles Grassley (R-IA). Grassley has been favorable to ESOP legislation in the past; Thomas has no significant record on the employee ownership issue. In the Senate, the Democrats will have a partial-power sharing arrangement on the committees. Max Baucus (D-MT), a strong supporter of employee ownership in the past, will lead his colleagues on Finance. On the House side, John Boehner, whose "Wealth Through he Workplace Act" would have created a new kind of option deductible to the company but the spread on which would be taxable as capital gains to the employee, takes over as chair of the Education and the Workforce Committee. Overall, then the new lineup looks promising for employee ownership supporters.

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