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The Employee Ownership Update

Loren Rodgers

March 1, 2018

(Loren Rodgers)

DOL Enters Into New Settlement Agreement on ESOPs

The Department of Labor entered into a new settlement agreement with an ESOP fiduciary, in this case Alpha Investment Consulting Group. The settlement arises out of a case alleging improper valuation and loan terms in the case of Acosta v. Mueller et al., Civil Action No.: 2:13-cv-01302 (E.D. Wis. Dec. 27, 2017). The DOL alleged that the ESOP at Omni Resources overpaid for the shares by using a valuation done four months prior that did not reflect changed financial projections. In the settlement with Omni, the former owners agreed to repay the plan $1.523 million, reduce the amount due on the loan by $3.5 million, and pay an ERISA penalty of $479,000 to the DOL. Allocations from the payments to the ESOP will be retroactive to 2008, and former vested participants will receive part of the settlement as well.

The settlement agreement with the Alpha Investment Consulting Group concerned the portion of the suit seeking to preclude Alpha Investment Group from serving in the future as fiduciary. The agreement breaks little new ground from the prior settlement with GreatBanc Trust, First Bankers Trust, and James Joyner. It adds that where seller financing is used (as it was here), but outside financing was available, the fiduciary should evaluate whether the outside financing provided better terms, and, if so, why seller financing was used. The agreement also calls for the trustee to evaluate the need for a fairness opinion, although that is already standard practice.

Employee Ownership Bill Introduced in Maine

LD 1338, "An Act To Create and Sustain Jobs through Development of Cooperatives and Employee-owned Businesses," has been introduced in the Maine legislature. The bill has multipartisan sponsors in both houses (Republican, Democratic, Green, and Independent). It would exempt sales to ESOPs or worker cooperatives from state taxation and would allow lenders to exclude income from loans to ESOPs and worker cooperatives from their taxable income. Maine capital gains income can be taxed at marginal rates up to 7.5%.

Just Under Half of Best 100 Companies to Work For Have Broad-Based Employee Ownership

Thirty-seven of 76 companies on the annual Fortune Best 100 Companies to Work For list have some form of broad-based employee ownership. That percentage has varied very little since the 1990s, in part because the list does not change dramatically from year to year. Companies must apply to be on the list and are rated primarily on a trust index developed by the Great Place to Work Institute. Twenty-four of the companies are partnerships, nonprofits, mutual corporations, or other entities that cannot have a broad-based plan. Four of the companies (R.W. Baird, TD Industries, Publix, and Burns and McDonnell) are majority employee-owned. Sixteen of the companies have a stock purchase plan only; 17 have broad-based equity grants and, almost always, a stock purchase plan as well.

South Africa: Employee Ownership Distributions

The Clicks Group, an 8,000-employee South Africa-based retailer of health and wellness products across Africa, has announced that employees will receive a payout of $1.3 billion rand ($110 million dollars) as the first of one of two installment distributions of their employee stock ownership plan. That is the equivalent of one year's pay for most workers. Clicks stock has quadrupled since the ESOP was initiated four years ago. You can see the full story online, with videos of the celebration. South Africa does not have legislation similar to U.S. ESOPs, but there are some government incentives for companies to set up plans, often via a trust for all employees.

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