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The Employee Ownership Update

Corey Rosen

March 31, 2006

(Corey Rosen)

Tax Reform Initiatives Appear Remote

IRS Commissioner Mark Everson told the National Press Club on March 14 that tax reform is not a high priority for the Administration or Congress, and that the Administration, in particular, shows no interest in moving on the proposals set forth in the President's Advisory Panel on Federal Tax Reform. That panel, among other things, had recommended completely overhauling retirement plans. The panel's recommendations were interpreted as meaning that ESOPs and other defined contribution plans would be replaced by a new version of 401(k) plans, but panel members have said that was not their intention. Whatever they meant, the proposals appear dead for now and, given the short shelf life of such commission proposals, almost certainly dead for the long term.

New Determination Letter Process

As of February 1, 2006, there is a new IRS determination letter procedure for qualified plans such as ESOPs and 401(k) plans. The new program requires that plans submit a determination letter to the IRS every five years based on an employer identification number used for federal tax purposes. There are special rules for mergers, spinoffs, and plans maintained by employers under common control. The procedure also extends the period for remedial amendments under the Economic Growth and Tax Relief Reconciliation Act to (EGTTRA) the time of each company's determination letter cycle.

New European Research on Broad-Based Employee Ownership

Broad-based employee ownership is still in its infancy in most European countries, but there is growing interest in the idea. Two new papers from a recent seminar led by Erik Poutsma of the Nijmegen School of Management in The Netherlands highlight the developments.

In "Changing Patterns of Financial Participation in Europe," Poutsma and his colleagues report on a survey of profit sharing and ownership plans in six countries (the United Kingdom, Denmark, France, The Netherlands, Finland, and Spain). The survey found that broad-based option plans were used at 28% of the companies in The Netherlands, 18% in the UK, and 4% to 12% of companies in other countries. Share purchase plans were more common, with 91% of UK companies offering the plans, 51% of French companies, 40% of Danish companies, and 12% to 16% in the others. The median ownership in the share plans, however, was only 1% of total shares. Only a small minority of companies plan to change either their broad-based option or stock purchase plans in right of recent accounting changes.

In a paper reporting on the results of an October 14, 2005, seminar on the topic, researchers report on a survey of 209 public companies in the UK, France, Finland, and Germany, finding that 37% had some kind of broad-based share plan. A study on French employee ownership plans found that there was a limited impact on financial performance, primarily in smaller companies.

Are You an Employee Ownership 100 Company?

The "Employee Ownership 100" list will be published in the July-August 2006 issue of the NCEO's newsletter for members. If your company should be on the list, but isn't, or your entry on the current list is incorrect, please contact NCEO Executive Director Corey Rosen ( by May 15, 2006. To qualify, your company must be at least 50% owned by an ESOP or other broad-based ownership plan.

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