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The Employee Ownership Update

Loren Rodgers

June 15, 2011

(Loren Rodgers)

DOL Obtains $10 Million Settlement in Suit Against ESOP Company

A lawsuit filed by the U.S. Department of Labor against the DirecTECH Holding Co. Inc. Employee Stock Ownership Plan resulted in six consent judgments requiring payment of $10,454,545 in restitution to plan participants and $1,045,454 in civil penalties to the federal government. The plan covered 5,799 participants employed by businesses in Kentucky, Michigan, and Louisiana. According to the DOL's suit, plan fiduciaries allegedly retained appraisers with insufficient qualifications, used inadequate valuation methods for stock transactions, and provided inaccurate information to the appraiser. Litigation against remaining defendants is ongoing.

San Francisco Provides Payroll Tax Relief for Stock Options

San Francisco Mayor Edwin Lee signed legislation that would give certain companies a partial tax exclusion on stock options. San Francisco had been the only jurisdiction in California to impose a payroll tax on gains on stock options, and the measure is designed to ensure that high-tech companies remain based in the city. The measure will reduce the tax for the next six years.

Senate Bill Addresses Proposed Fiduciary Status of ESOP Appraisal Firms

Three New England Republican senators (Kelly Ayotte of New Hampshire, Olympia Snowe of Maine, and Scott Brown of Massachusetts) introduced a bill that would prevent the Department of Labor from implementing regulations that would make ESOP appraisers fiduciaries of those plans. The DOL has not yet finalized its proposed new regulations, but comments by Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration suggest an ongoing interest in making ESOP appraisers plan fiduciaries. She said, "We knew [the proposed] regulation was going to be controversial, but there has been even more intensity than we expected."

NCEO members can join our June 23 Webinar on the topic. We have submitted comments on the proposed regulations.

New Academic Publication on Employee Ownership

Social science research on employee ownership has traditionally been rare, but Cornell University Press's upcoming release of Employee Ownership and Shared Capitalism is one more sign of an increased level of interest. The book's editor is former NCEO staff member Edward Carberry, currently an assistant professor in the Business-Society Management department at the Rotterdam School of Management, Erasmus University. The book includes chapters by more than 20 authors and aims to provide a "representative cross-section of current research, lively debates, and new research initiatives." More on the publication is at this link.

Employee Ownership in The Nation

The June 27, 2011, issue of The Nation featured 13 articles about the shape and future of capitalism, several of which focus on employee ownership. Joseph Blasi, Douglas Kruse, and Richard Freeman make the case for broad-based incentive programs, including employee ownership. Christopher Mackin argues that employee ownership has inherent appeal to both the political right and left, suggesting that this "ideologically ambidextrous quality is one of the core strengths of the ESOP idea." Other contributors discuss the role of stock ownership in executive compensation and the importance of protecting retirement assets in company-sponsored plans. The contents of the issue are available at this link (free registration required).

Author biography and other columns in this series

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