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The Employee Ownership Update

Loren Rodgers

May 15, 2013

(Loren Rodgers)

Loan Funded Share Plans in Australia

In an interesting variation on employee stock purchase plans, loan funded share plans (LFSPs) in Australia allow an employer to make an interest-free loan to employees to buy shares. The shares are held in trust by the employer until the loan is repaid. The recourse on the loan is limited to the shares if the share price falls below the price at which the shares were purchased. The right to take possession of the shares is subject to vesting. Any dividends paid on the shares are used to repay the loan.

The structure of a LFSP is relatively simple. The employer makes an interest-free limited recourse loan to enable the employee to acquire shares in the employer for market value. The limited recourse feature of the loan means that the employee is protected from downside risk if the value of the shares falls below the outstanding loan balance.

Anthony Bradica of Hall & Wilcox in Australia recently wrote an article with more details on the plan.

Fiduciary Rules for Appraisers on Indefinite Hold?

The U.S. Department of Labor (DOL) proposed sweeping changes for ERISA fiduciaries two years ago, including rules that would make ESOP appraisers plan fiduciaries. The DOL still says it plans to issue regulations later this year, but some speakers at our annual conference last month thought the whole fiduciary project could be on indefinite hold.

Seventh Circuit Affirms Presumption of Prudence in 401(k) Case

In White v. Marshall & Ilsley Corp., No. 11-2660 (7th Cir. Apr. 19, 2013), the Eleventh Circuit upheld the Moench presumption of prudence for investments in employer stock for Marshall & Ilsley's 401(k) plan. The court also ruled that the presumption applies at the pleading stage. The Marshall & Ilsley plan allowed employees to invest up to 30% of their plan assets in company stock. Plan documents required company stock to be an option. When the stock dropped sharply, employees sued. The court ruled that the plan's provisions meant that fiduciaries had to choose between the threat of being sued for making an allegedly imprudent choice to allow continued investment in the stock or be sued for not allowing it if the stock price went up later. The presumption of prudence is the only way around that dilemma, the court argued. Moreover, while the company's stock did fall, the company was not in dire circumstances. The court concluded that overcoming Moench requires "that no reasonable fiduciaries would have thought they were obligated to continue offering company stock" and that fiduciaries cannot be held liable for failing to "outsmart a presumptively efficient market," a very broad reading of the prudence presumption.

New NCEO Site: A Visual Guide to Employee Ownership (ESOPinfo.org)

The NCEO has started a new Web site at esopinfo.org, A Visual Guide to Employee Ownership. The NCEO created this site to serve not only the employee ownership community but also the broader public in communicating the extent and nature of employee stock ownership. Unlike our main Web site, this is primarily visual, with charts, graphs, and visual explanations of what ESOPs are and what the research shows about them. There also are interactive maps that show all the ESOPs appearing in Form 5500 data from the Department of Labor.

Annual Conference Sets Record Again

The NCEO's annual conference in Seattle last month hosted about 1,065 attendees, another new record and the fourth consecutive record year that attendance has increased. Next year we will be in Atlanta for the first time. The meeting is set for April 8-10.

The Corporate Directors' Exchange

The Corporate Directors' Exchange is a 1.5-day executive development program from the Beyster Institute at UC San Diego that examines the role of the board of directors at ESOP companies. The course combines classroom activities, group exercises, expert lecturers, and group discussion to assure the participants' mastery of the responsibilities attached to this vital role. For information and registration, see www.rady.ucsd.edu/beyster/events/.

Author biography and other columns in this series

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