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The Employee Ownership Update

Loren Rodgers

May 15, 2015

(Loren Rodgers)

Pro-ESOP Legislation Introduced in the Senate

On May 6, Senators Pat Roberts (R-KS) and Ben Cardin (D-MD) introduced S.1212, the Promotion and Expansion of Private Employee Ownership Act of 2015. A bipartisan group introduced a similar bill in the House (H.R. 2096) the week before. Both bills would support the creation and sustainability of ESOPs, especially in S corporations.

Towers Perrin Study: Large Public Companies Rethinking Stock in Their Retirement Plans

A March 2015 Towers Perrin survey of 160 large public companies finds that many are rethinking their plans in light of the Supreme Court decision in the Fifth Third v Dudenhoeffer case. In the report, Company Stock in Defined Contribution Plans, Towers Perrin found that:

South Africa Reduces Incentives for Broad-Based Ownership; Spain Expands Them

In a surprise development, South Africa has reduced the number of points companies with broad-based employee ownership plans earn for Black Economic Empowerment (BEE) credit. Companies that score high on BEE measures, which were designed in part to encourage capital ownership by black South Africans, get preference for government contracts, a large part of the South African economy. People familiar with broad-based plans said the new rules will significantly discourage companies from setting up or maintaining the plans.

Spain, however, is going the other way. Taxation on up to 12,000 ($13,700) annually of realized gains from equity compensation plans had been tax-exempt provided that the same stock plan was available to all employees within the same category or grade of the company. The new law provides this exemption only if the plan is available on the same terms to all employees of the company, including their subsidiaries, thereby encouraging broad-based equity compensation.

Free Equity Compensation App from, a resource for information and resources on stock options and other forms of equity compensation has released a free app that features glossary terms, term-of-the-day, and an interactive quiz equity and executive compensation terms. The press release has more details and download instructions.

Worker Co-op Conference July 10-12, 2015, in Massachusetts

The Eastern Conference for Workplace Democracy (ECWD) will be July 10-12 at Clark University in Worcester, Massachusetts. This biennial conference of the eastern region of the US welcomes worker cooperators, co-op developers, community and labor activists, funders, academics, and journalists. Registration and more information is available at the conference website.

Comment Period Open for AICPA Audit and Accounting Guide for ESOPs

Many ESOPs are required to file audited financial statements with their annual Form 5500 filing to the IRS and DOL. There has been little technical guidance available on how these audits should be performed, and many ESOP sponsors, trustees, valuation advisors, and auditors have requested such guidance. The American Institute of CPAs (AICPA) has just issued a working draft of the financial reporting standards for ESOPs to be included in the AICPA Audit and Accounting Guide Employee Benefit Plans. The auditing content will be published later.

The purpose of a working draft is to provide the opportunity for comment on the proposals from preparers, auditors, users of ESOP financial statements, and other interested parties. The Financial Reporting Executive Committee of the AICPA invites comments on all matters in the proposed chapter and appendix. In their comments, respondents should refer to specific paragraph numbers and include reasons for any suggestions.

The working draft includes two areas that should be of particular importance to the ESOP community:
  1. The chapter includes an appendix that describes the fundamental tax and ERISA rules governing ESOPs. The intention of this appendix is to help the auditor understand the plan under audit. As such, the ESOP community is requested to review the appendix to highlight other opinions that should be considered in addition to those of the authors and any additional topics that should be considered for inclusion.
  2. Critically, the working draft introduces the notion that the ESOP valuation used for measuring the value of shares for participant distributions should be considered the "principal market" in determining fair market value. If this concept is determined to be appropriate in most ESOP fact patterns, it would eliminate the issues currently presented on whether "fair value" under generally accepted accounting principles is different than "adequate consideration" or "fair market value" as typically used by the ESOP trustee.

The working draft can be accessed on the AICPA Financial Reporting Center. [Note: see paragraph X.42 of the working draft for ESOP-related text]. Comments are due by June 19, 2015.

Thanks to Becky Miller at McGladrey.

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