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The Employee Ownership Update

Loren Rodgers

June 17, 2013

(Loren Rodgers)

FASB Indefinitely Defers Disclosure Requirements

On June 12, the Financial Accounting Standards Board (FASB) announced that it would "indefinitely defer certain disclosures about investments held by a nonpublic employee benefit plan in its plan sponsor's own nonpublic equity securities." FASB had originally proposed disclosures that would have required a description of the specific valuation methods used and the specific rates applied. Today's project updates for Fair Value Measurement Disclosures of Private Company Equity Securities by Employee Benefit Plans are now online.

FASB solicited feedback during May and received 72 letters. Of those, 69 supported the proposed deferral. Two proposed alternate ways to avoid the disclosure, and one, from the Department of Labor, advocated for the implementation of the disclosure requirements. The DOL argued that the deferral would "deprive the plan's participants and beneficiaries of important information directly linked to the value of the stock of their private company sponsors."

FASB Chairman Leslie F. Seidman wrote that the decision addresses the concern of private company shareholders that "certain disclosure requirements would potentially provide proprietary information when their employee benefit plans' financial statements are posted on the plan regulator's website."

On February 13, the NCEO joined Employee-Owned S Corporations of America and the ESOP Association in a joint letter to FASB requesting exemption for privately held ESOP companies.

Australia to Review Taxation of Stock Options

Three Australian government ministries announced two reviews to determine how to better support technology startups in Australia. Member of Parliament David Bradbury noted that he has received input that the "Government should look at the framework around employee share schemes with an eye to supporting the development of start-ups in Australia." The reviews will include a focus on stock options, which in Australia are taxed on vesting.

Along similar lines, a report commissioned by Google and written by PwC on the impact of tech startups on Australia's economy concludes that the regulatory environment for startups could be improved if the government brings the tax treatment of options "in line with the UK and the US."

Ninth Circuit Holds Moench Presumption Does Not Apply in Amgen Case

In Harris v. Amgen, No. 10-56014 (9th Cir. June 4, 2013), the Ninth Circuit Court of Appeals overruled a district court, which had relied on the presumption of prudence to dismiss a stock-drop case against Amgen. The Moench presumption states that a plan fiduciary is presumed to be acting reasonably when maintaining a plan's investment in company shares. Following the Second Circuit, the Ninth Circuit said that the presumption does not apply when "plan terms did not require or encourage the defendant fiduciaries to invest primarily in employer stock. Accordingly, the presumption of prudence articulated . . . did not apply to a claim that defendants acted imprudently."

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