What Is Ownership Culture?

Just about every ESOP company wants to have employees who think and act like the employee-owners. Compelling research and decades of experience show that employee ownership is in fact a powerful tool to improve corporate performance – but only when companies have “ownership cultures” in which employees think and act like owners. There is a…

Read More

United States District Court – Eastern District of North Carolina Renders Pro-ESOP Trustee Decision

In Lee v. Argent Trust Company, the district court dismissed the Plaintiff’s claim that Argent, as trustee of the Choate Construction Company ESOP, committed a fiduciary breach when it paid $198 million for the purchase of 100% of the company’s stock. The Plaintiff had alleged that she suffered damages because the ESOP’s stock was valued…

Read More

Major Tax Benefits of ESOPs

ESOPs have several significant tax benefits, the most important of which are: 1. Contributions of stock are tax deductible: That means companies can get a current cash flow advantage by issuing new shares or treasury shares to the ESOP, although this means existing owners will be diluted. 2. Cash contributions are deductible: A company can…

Read More

ESOPs Versus 401(k) Plans for Retirement Security*

ESOPs 401(k) Plans Contribution rate from company to the plan 6% to 8% of pay per year for all eligible employees. 4% of pay of those eligible employees making deferrals per year (about two-thirds to three-quarters of eligible employees defer into the plan). Rate of return Department of Labor data indicate ESOPs had a 9.1%…

Read More

The Uses of ESOPs

Many people do not know what an ESOP is, let alone what one is used for, and the ways ESOPs can benefit employees. The following is summary of how ESOPs are used. To buy the shares of a departing owner: Owners of privately held companies can use an ESOP to create a ready market for…

Read More

Is the Trustee the Same as the Fiduciary of an Employee Ownership Plan?

In most cases, the trustee is the fiduciary, but the two functions are not necessarily the same. Plans must designate who the fiduciary is; they can designate this for all issues or have different fiduciaries for particular issues. A fiduciary is anyone who makes decisions about plan operations, including its management or the disposition of…

Read More

Does the Board Become a Fiduciary Simply by Appointing a Trustee?

Courts have generally said no, but in the Department of Labor’s August 2003 lawsuit against Enron (the case was settled out of court), it asserted that the board and management did have fiduciary responsibility for Enron’s stock ownership plans because they appointed and had the right to change fiduciaries for the plans. In this case…

Read More

Who is a Fiduciary?

A fiduciary is anyone who makes decisions for the plan, causes someone to make a decision about the plan, or, in some cases, provides advice to someone making decisions about the plan. Put differently, it is anyone who exercises control over plan assets, directly or indirectly. Any person (or any group of people) can be…

Read More

Who Can Be a Trustee?

Anyone can serve as a trustee, but it should be someone with the requisite knowledge and skills or someone who will acquire them. While a seller can be a trustee, it is not a good idea as courts and the DOL will regard it as a per se conflict of interest. Who selects the trustee?…

Read More