The Employee Ownership Update
June 30, 2010
Royal Mail Employees to Get a Share of CompanyThe new British government plans to privatize part or all of the country's Royal Mail Service in the fall. The plan calls for employees to own part of the company under a share ownership trust. The idea has been floating around for some years, and now is likely to come to fruition, despite labor union opposition to any privatization.
Academic Interest in Employee Ownership BlossomsThanks to the efforts of the Foundation for Enterprise Development, the Beyster Institute at the Rady School of Management, Professor Joseph Blasi at Rutgers, and the Rutgers School of Management and Labor Relations, academic interest in employee ownership is finally coming of age after a long period of being largely ignored. At a June 28-29 gathering of researchers at the Second Annual Beyster Fellowship Symposium, over 50 scholars reported on a variety of exciting new research projects underway. The researchers came from business schools as well as from economics, history, organizational development, and philosophy departments. In general, the researchers agree that employee ownership has been shown to have significant positive effects for companies and employees, although there are important exceptions. Much of the new research is looking to dig deeper to find what conditions are most conducive to employee ownership and why it is adopted in some firms but not others.
Article Explores Top Five Trends in Equity CompensationMatt Simon of myStockOptions.com has published a useful article on the five top trends in equity compensation over the last decade. The Web site, which helps people figure out how to understand and manage their equity grants, is now 10 years old. The article can be found at this link.
Tech Employees Rate Shared Capitalism as Key BenefitComputerWorld asked 38,000 employees in the information technology field what they believe is the best benefit of working for their company. The employees all worked for the 100 companies ranked the best places to work for information technology workers. The table below shows that some form of shared capitalism ranks highly:
|Profit sharing/employee stock-ownership program/401(k)/403b plan||51%|
New Rules on Employer Stock Diversification in 401(k) and KSOP PlansOn May 19, the IRS published new regulations (26 CFR Part 1, TD 9484) on required diversification of employer stock in 401(k) plans and combined ESOP/401(k) plans (KSOPs). Read them online at this link (opens in new window). Under the Pension Protection Act of 2006, publicly traded companies that do not have stand-alone ESOPs are required to allow employees to diversify out of employer stock, whether it came from employer contributions or employee investments of their own deferrals. Stand-alone ESOPs are exempt from the rules.
Under the law, a participant's right to invest in or divest employer securities cannot be any more restricted than it is for any other plan investment options. However, the final regulations modify some of the permitted restrictions. According to the IRS:
The IRS notes that the final regulations also:
- A plan may allow transfers to and from stable value funds and out of qualified default investment alternatives more frequently than a fund invested in employer securities.
- Under the law, a plan may prohibit further investments in an employer stock fund, thereby "freezing" it. The regulations clarify that if employees are reinvesting Section 404(k) dividends on employer stock, the employer stock fund would still be considered frozen.
- Under a transitional rule, leveraged ESOPs that acquired stock in a plan year beginning before January 1, 2007, may allocate such stock as matching contributions to a frozen employer stock fund.
In the preamble, the IRS states that an ESOP that presently has a diversification option under Section 401(a)(28) will not violate anti-cutback rules by eliminating this option in favor of the more favorable (to employees) diversification provisions of the Pension Protection Act.
- do not treat a multiemployer plan as holding employer securities if they are held indirectly through an investment fund managed by an independent investment manager and do not exceed 10% of the fund;
- extend the types of allowed investment companies to include certain exchange traded funds;
- state that in determining whether the value of employer securities exceeds 10% of the fund's investment's total value for a plan year, the value at the end of the preceding plan year should be used; and
- provide that if a fund that indirectly holds employer securities does not meet the "independent of the employer" requirement, it meets the diversification requirements even if the plan does not offer diversification rights to the participants for up to 90 days after it is found to hold employer securities.
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