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The Employee Ownership Update

Corey Rosen

April 11, 2001

(Corey Rosen)

Pension Reform Reintroduced

Essentially the same version of the Comprehensive Retirement Security Act (H.R. 10) that passed the House overwhelmingly last year was reintroduced in March by its principal sponsors, Rob Portman (R-OH) and Ben Cardin (D-MD). A very similar bill is scheduled to be introduced sometime in April in the Senate by Charles Grassley (R-IA) and Max Baucus (D-MT). Both bills would raise deductible contribution limits to defined contribution plans to 20% of pay, increase in stages the dollar limit on deferrals to 401(k) plans from the current $10,500 to $15,000, significantly increase the percentage of pay that could be deferred to a 401(k) plan (provided it is within the dollar limits), and increase portability of for retirement benefits.

For ESOPs, it would introduce changes that would make it difficult for companies to use S corporation ESOPs to avoid taxes for the primary benefit of just a few owners. It would also allow employees to reinvest dividends received on ESOP shares back into company stock on a pretax basis.

The bill seems likely to pass as it has few opponents in either the House or the Senate. The only obstacle would be if the costs of other tax changes forces revision of the bill's more costly provisions.

A Web site has been set up by proponents of the bill to coordinate lobbying efforts at

Survey Shows Continuing Broadening of Stock Options

A recently released survey of 200 mostly new economy companies by the consulting firm iQuantic shows that the percentage of high-technology employees getting options was 30% to 50% higher in 1999 than in was four years earlier. Smaller companies are more likely than larger ones to extend options all the way down to non-exempt employees. Companies with larger numbers of non-exempt employees, particularly in the manufacturing and e-commerce end of the technology sector, were less likely to include non-exempt employees than software companies. Nonetheless, participation in stock option plans is growing across the board, with all groups, including non-exempt employees, about 20% to 30% more likely to get options than in 1996. About 20% of non-exempt employees were getting options in about half the companies in 1999. On the other hand, in 1997, the survey found no non-exempt employees got options at hire; in 2000, 60% did, while 75% or more of other groups did. Smaller companies are even more likely to offer new-hire options across the board. This new-hire trend suggests that option programs have dramatically changed in terms of eligibility, suggesting future surveys will show a much higher percentage of current non-exempt employees with options and almost universal participation for higher levels.

UK Stock Options Incentives Set to Pass

According to the Employee Share Ownership Centre in London, the Blair government has introduced legislation that would expand the existing Enterprise Management Incentive plan. Under current the plan, companies with gross assets of under $15 million pounds can to offer up to 15 of their staff stock options that will not be subject to income or other payroll taxes. Capital gains tax generally will be paid only when the shares are sold, and the longer assets are held, the lower the rate. If an employee holds the options or shares from the exercise of options for four years or more, the top capital gains tax rate would be just 10 per cent. Employees can receive up to 100,000 pounds in option value. The new proposal, which appears certain to pass, would eliminate the restriction on the number of employees eligible, but limit the total amount that could be granted to 3 million pounds per company.

State Law Claims Not Preempted by ERISA

A U.S. district court in Missouri ruled that an employment-related complaints that revolved around alleged promises made by Amsted Industries in conjunction with its ESOP were not preempted by ERISA and could be pursued under state law (Thrailkill v. Amsted Industries, Inc., May 31, 2000). The plaintiffs alleged that Amsted had offered them lower wages but a 25% of pay annual ESOP contribution to come to work there. Their division was sold before the employees were fully vested in the ESOP, however, and those accepting employment with the new employer lost their unvested benefits. The plaintiffs were not seeking a restitution of these benefits, but were suing the company for misrepresentation and fraud. The district court did not rule on the complaint, but ruled only that ERISA does not preempt state law on this matter.

Author biography and other columns in this series

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