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The Employee Ownership Update

Corey Rosen

November 15, 2010

(Corey Rosen)

Court Grants Summary Judgment Against GreatBanc Trust in Tribune Case

In Neil v. Zell, GreatBanc Trust, and EGI-TRB, No. 08 C 6833 (N.D. Ill., Eastern Division, Nov. 9), a district court issued a partial summary judgment that GreatBanc Trust violated its fiduciary duty when it approved the purchase of newly issued unregistered shares in the Tribune Company for the new ESOP, which constituted a prohibited transaction. The court said that because "other Tribune stock was available for purchase on the market, the ESOP could not sell its own shares at the time of purchase."

The Tribune ESOP transaction was exceptionally complex, with multiple stages. In this transaction, the ESOP purchased $250 million worth of unregistered shares at a time when there were still 240 million shares of the Tribune Company on the public market. The company then did a tender offer to buy and retire these shares. The court concluded that because there were still publicly traded shares on the market, the ESOP could buy only these shares. ERISA requires that ESOPs buy "qualifying employer securities," defined as either publicly traded stock or, if the company is closely held, the class of stock with the highest combination of voting and dividend rights. GreatBanc argued, in effect, that this was all part of a larger transaction that would end up with all the shares being privately held, but the court did not accept this approach. The case will almost certainly be appealed.

IRS Says No Changes in Plan Limits for 2011

The IRS has announced that there was not enough inflation to trigger changes in the various limits on annual contributions and annual additions in defined contribution plans, and that definitions for highly compensated employees and the amount over which ESOP distributions can be paid out in more than five-year installments will not be changed. Details are at this link.

New Site for Nonqualified Deferred Compensation Plans

Many companies with qualified retirement plans, including ESOPs, have nonqualified retirement plans for certain employees as well, usually because the contribution limits for qualified plans may exclude some of their compensation. Bruce Brumberg, who created the immensely useful site, has now created a new Web site for these plans, Like the first site, the emphasis is on helping beneficiaries of these plans understand their design, tax, and planning implications.

Penmac Staffing Services Becomes Sixth-Largest Majority Employee-Owned Company

An ESOP has purchased all but a fractional percentage of Penmac Staffing Services in Springfield, Mo. The company employs over 15,700 people, has 26 branch locations in various states, and provides administrative and professional staffing for a wide variety of companies.

IRS Says Option Exercises Causing 401(k) Errors

Monika Templeton, director of employee plans examination, told an IRS phone forum that about half of all 401(k) plans that have been audited have errors in calculating compensation and that stock option and ESPP exercises cause one of the most common problems. These exercises are often subject to ordinary income tax treatment and must be included in calculations of salary both for tax and anti-discrimination testing, but the information often does not get from the stock plan administrator to the 401(k) plan administrator.

Author biography and other columns in this series

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