In 1975, a mere 42 years ago, Congress enacted Section 301 of the Tax Reduction Act of 1975 authorizing a tax-credit driven employee stock ownership plan known as a TRASOP – Tax Reduction Act Stock Ownership Plan. An employer that adopted a TRASOP could claim an extended investment tax credit against its federal income taxes equal to an amount it contributed to an employee stock ownership plan in stock, or cash that was used to purchase its stock. The plan had to abide by special, strict vesting and distribution rules. Thus, the TRASOP credit was designed to encourage the purchase of qualified property — mainly equipment and machinery — while at the same time providing a benefit to employees.
UPDATE (Sept. 29, 2016):
On Sept. 23, 2016, the Department of Labor announced that the deadline for submitting comments would be extended by more than two months, to Dec. 5, 2016.
The Department of Labor (DOL) — jointly with the IRS and the Pension Benefit Guaranty Corporation — has proposed major revisions to the Annual Returns/Reports under the Employee Retirement Income Security Act of 1974 (ERISA), more commonly known as Form 5500s. The proposed revisions will require plan sponsors to provide more information, some of which may open the door to litigation risks.
An employee stock ownership plan, or ESOP, is a type of defined contribution retirement plan in which employees’ accounts are invested primarily in stock of the sponsoring employer. In other words, the ESOP literally owns the corporation — whether partly or fully — allowing the employees to benefit from its success.
A recently decided Fifth U.S. Circuit Court of Appeals case provides employee stock ownership plan (ESOP) fiduciaries and others with an example of how not to undertake an ESOP transaction.
When an employee stock ownership plan purchases the stock of a closely held corporation, the duty of a fiduciary is to act solely in the interest of the participants and their beneficiaries. The case, Perez v. Bruister, details that duty and the consequences of failing to fulfill it.