By John D. Menke, Esq. A & E firms, like other service businesses, face two challenges to business succession. First, how will the firm finance the buyout of the founders when they are ready to exit the business? Second, how will the firm best be able to provide equity incentives to attract and retain key employees who will become successor management when the founders exit the business? The exit vehicle for founders of A & E firms traditionally has been to redeem the stock of a founder in exchange for cash and/or a seller note when the founder is ready to exit the firm. But this approach has three distinct disadvantages. First, if the founder is a significant equity holder, as is usually the case, the redemption will result in reducing the number of share outstanding, thus increasing the per- share value per share of the remaining shares. This increase ... Read More..
To download a pdf of the presentation slides, click here This is a one-and-a-half hour live Audio/Web Seminar that covers the basics of ESOPs from A to Z. This Audio/Web Seminar is designed for company owners and financial officers who want to determine whether an ESOP might be a good fit for their company. This program is designed to provide a broad overview of the advantages and disadvantages of ESOPs, without going into the detailed technical aspects of ESOPs. Program Agenda Why ESOPs Are Popular Liquidity & Diversification for Seller Employee Productivity Increase Company Cash Flow Business Succession ESOPs vs. Other Alternatives ESOP Disadvantages Menke Services Q&A ... Read More..
SolarCraft, a well established Novato solar panel design and installation firm, has become 100% employee owned. With the help of The Menke Group, the principal owners of SolarCraft have extended ownership to their employees by way of an Employee Stock Ownership Plan. In addition to helping create financial security for employees, the plan is designed to encourage and reward increased employee productivity and efficiency. According to The Menke Group, a 5 or 10 percent increase in individual employee productivity can result in increasing company profitability by 50 percent or more. The ESOP creates a direct link between employee productivity and employee benefits, and nurtures a collaborative culture where the employee-owners and the bottom line can thrive. Previous owners, Bill Stewart and Dennis Nuttman, plan to remain active in their current roles as President and Director, respectively, for the foreseeable future as the company transitions to a new management team made ... Read More..
A new comprehensive tax reform proposal was introduced by House Ways and Means Committee Chairman Dave Camp on February 26th, 2014. Camp’s proposal would cut the tax rate for C corporations to 25% over a period of five years. It would also cut individual tax rates to two brackets (10% and 25%), but it would add a 10% surtax on high income taxpayers. Of interest to the ESOP community is the fact that Camp’s proposal would cut in half the maximum pre-tax annual contributions that could be made to certain defined contributions plans, including 401(k) plans but not including ESOPs. According to House Speaker John Boehner, however, it is not likely that the Camp proposal will be voted upon during 2014. Subsequently, on March 4, 2014, President Obama released his 2015 Budget proposal, which includes a proposal to cap Section 401(a) plan retirement accounts to $3 million per individual. Since ... Read More..
Editor/founder Richard Gillespie has announced that Fast Cuts Edits has become 100 percent employee owned through the creation of an Employee Stock Ownership Plan (ESOP). ... Read More..
The following is a list of affected sections of the Code and the 2014 limitations of interest to the ESOP community Code Section Description 2016 Limitations 2015 Limitations 401(a)(17) Limit on the amount of annual compensation taken into account $265,000 $265,000 402(g)(1) Limitation on the exclusion for elective deferrals described in Section 402(g)(3) of the Code $18,000 $18,000 409(o)(1)(C)(ii) Dollar amount for determining the maximum account balance in an ESOP subject to 5 year distribution period $1,070,000 $1,070,000 414(q)(1)(B) Limitation used in the definition of “highly compensated employee” $120,000 $120,000 414(v)(2)(B)(i) Dollar limitation for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) of the Code $6,000 $6,000 415(b)(1)(A) Limitation on the annual benefit under a defined benefit plan $215,000 $215,000 415(c)(1)(A) Limitation on the annual contribution and other additions for a defined contribution plan $53,000 $53,000 416(i)(1)(A)(i) Limitation used in ... Read More..
This may be the opportune time to take action to avoid the increase in capital gains tax rates that will most likely take effect next year. According to the Kiplinger Tax Letter, Congress will likely increase the tax rate on long term capital gains for high income individuals from 15% to 20% starting next year. In addition, starting in 2013 the Obama Health Care Bill imposes a 3.8% tax on investment income and on capital gains for those who earn more than $250,000. These two tax law changes will result in a capital gains tax rate for 2013 of 23.8%, which is a 59% increase. If you have an interest in locking in the capital gains tax at the current rate but do not wish to sell your entire company to a third party, there are two tax strategies that you can use either to avoid paying the capital gains ... Read More..
ESOPs were first authorized by federal legislation in 1974. Since that date, there have been more than 25 separate pieces of legislation that have further defined what an ESOP is and what an ESOP is permitted to do. Despite this fact, significant misconceptions about ESOPs persist. The following describes some of the more prevalent myths and misconceptions regarding ESOPs. Hopefully, the explanations provided below will help to dispel many of the misconceptions that currently exist regarding these matters. MISCONCEPTION #1 – The ESOP is primarily an employee benefit plan. The ESOP is not primarily an employee benefit plan. The reverse is true. The ESOP is primarily a tool of corporate finance that is used as an alternative to a sale or merger as a way of creating liquidity and investment diversification for owners of privatelyheld businesses. An ESOP uses the tax advantages afforded to qualified employee benefit plans in order to ... Read More..
A study released today by Alex Brill, former advisor to the Simpson-Bowles bipartisan deficit reduction commission and a fellow at the American Enterprise Institute, finds that private employee stock ownership plans (ESOPs) organized as S corporations increased employment over the last decade more quickly than the overall private sector. Among surveyed “S-ESOP” companies, the Brill study reported, jobs grew by 60 percent over the past decade, while jobs in the private economy as a whole remained relatively flat. “The unique strengths of employee ownership drove company gains and jobs in the past decade, while helping insulate S-ESOP businesses from the adverse effects of the recent recession,” Brill wrote in the new report. ESOPs are tax-exempt retirement plans that consist of company stock held on behalf of the company’s employees. They are company-funded retirement plans that do not require any contribution from workers. Congress first changed U.S. tax rules to allow ... Read More..
An increasing number of companies are turning to Employee Stock Ownership Trust financing as a means to simultaneously raise low cost capital and provide increased employee incentives and retirement benefits while reducing the cost of qualified plan benefits. The Employee Stock Ownership Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. As such it is in the same family as pension plans, profit sharing plans and stock bonus plans. Nevertheless, The Employee Stock Ownership Plan (which together with the Employee Stock Ownership Plan, is referred to as the “Trust” or “ESOP”) is qualitatively different from other types of “qualified plans,” both in its concept and in its applications. Because of its inherent flexibility, because of its ability to facilitate and enhance corporate growth and because of its separate status under the recently enacted Pension Reform Act, the ESOP possesses an assortment of unique advantages not possessed ... Read More..
Advantages to C Corporations Many companies that have ESOPs fail to realize that their ESOP can be used to the finance acquisitions with pre-tax dollars. Normally, when debt is incurred to finance an acquisition, only the interest payments are deductible. Principal payments are not deductible. However, if the acquisition is financed through an ESOP, both the interest and the principal payments will be fully deductible, and this will be true whether the plan sponsor is structured as a regular C corporation or as an S corporation. In addition, if both the acquiring company and the target company are structured as regular C corporations, or both convert to C corporation status before consummating the merger, then the shareholders of the target corporation can qualify for tax-free rollover treatment upon the sale of their stock to the acquiring company’s ESOP. This additional tax savings gives the acquiring company a distinct advantage in ... Read More..
The Los Angeles Times featured an article about Howard’s Appliance & Flat Screen Superstores, which has been 100% employee-owned since 2000. The company, which started as a radio repair shop in San Gabriel, sold nearly half of the company over to the employees when the government approved employee stock ownership plans in 1976. Employees acquired 100% of the company in 2000. Howard Roach still retains his place as chairman of the board. Under the ESOP structure, profit shares accumulate in employee’s retirement accounts The more profitable the company, the more employees receive when they retire. The ESOP has resulted in far lower employee turnover than the in the rest of the industry. Howard’s, turnover rate is around 15% whereas other retailers typically experience 75% or more. Customers like dealing with faces they are familiar with from year after year and from generation to generation so having employees who have been there for ... Read More..
Mills James, a comprehensive creative media production company based out of Columbus, Ohio has made an animated film explaining how their Employee Stock Ownership Plan (and how ESOPs in general) work. Mills James employs about 150 employees and specializes in the following areas: Teleproduction, Broadcast Production, Business Video, Meetings & Events, Web Interactive and Original TV Productions. To read more about Mills James and their ESOP, you can visit their website here. ... Read More..
Below you will find the links to watch each of the Technical Issues Webinar Sessions On-Demand: Session 1: Introduction What is an ESOP? History of ESOPs CLICK HERE TO WATCH SESSION 1 Session 2: Retirement Plan Basics Qualified vs. Nonqualified plans Types of Plans CLICK HERE TO WATCH SESSION 2 Session 3: Basic ESOP Transactions Prefund Stock Contributions Leveraged ESOPs Section 1042 Transactions CLICK HERE TO WATCH SESSION 3 Session 4: Plan Operation Features Eligibility Requirements Participation/Benefit Allocations Vesting Distributions CLICK HERE TO WATCH SESSION 4 Session 5: Repurchase Obligation Repurchase Liability Studies Funding the Repurchase Obligation CLICK HERE TO WATCH SESSION 5 Session 6: Administration/Recordkeeping Disclosure Requirements Administration Procedures Administration Pitfalls Lost Participants Lost Beneficiaries CLICK HERE TO WATCH SESSION 6 Session 7: Special Problem Areas of Administration Contributions in Excess of 415 Limits Excess 401(k) Deferrals CLICK HERE TO WATCH SESSION 7 Session 8: Accounting Issues Balance Sheet ... Read More..
H.R. 1244, the “Promotion and Expansion of Private Employee Ownership Act of 2011,” was introduced March 29, 2011by a bi-partisan group of key members of the House Ways and Means Committee: Congressmen David G. Reichert (R-WA), Ron Kind (D-WI), Charles W. Boustany, Jr. (R-LA), Earl Blumenauer (D-OR), Erik Paulsen (R-MN), and Bill Pascrell (D-NJ). “This bi-partisan declaration of support for employee ownership through the ESOP (employee stock ownership plan) model among privately held companies, especially by the popular S corporation business model, is very impressive,” stated ESOP Association President J. Michael Keeling. H.R. 1244 will: 1.) permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984; 2.) permit lenders to S corporations with 50% ... Read More..
Local business owners say they’re spreading the wealth in Great Falls by offering long term employees stock ownership plans or ESOP’s. It’s a structure that is set up and its federally recognized, so the employees are then part of a trust that then owns either a 100% of the company or some portion of the company,” said Sletten President Erik Sletten. Today at Sletten Construction company, ESOP’s were the main topic of conversation — that and pie. Beyond just being a gluttonous getaway from work, the event used pie as a delicious symbol for an ESOP or an employee benefit plan that turns the employees of a company — into owners. You can read the rest of the article at KFBB.com http://www.kfbb.com/news/local/Great-Falls-Business-Owners-Explain-ESOPs-132662038.html ... Read More..
Click here to begin the presentation To download a pdf of the presentation slides, click here Program Agenda Valuation Considerations Sell Now Or Sell Later? Tax Considerations Pay Uncle Sam Now Or Pay Uncle Sam Later? To Participate In Esop Or Not To Participate? Financing Considerations To Borrow Or Not To Borrow? To Lend Or Not To Lend? Fiduciary Considerations To Serve As An Internal Fiduciary? Appointing An Independent Fiduciary Control Considerations Whether Or Not To Sell A Controlling Interest? Incentive Plans For Key Employees To Motivate Or Not To Motivate? Illustrative Case Histories ... Read More..
Read the original posting at the Cal-Tex Website Cal-Tex is 97% employee-owned through an Employee Stock Ownership Plan (ESOP).As the 2011 Grand Prize Winner of theNational Center for Employee Ownership’s Innovations in Ownership Award and the 2011 ESOP Association’s Best Communications Award (Small Company), Cal-Tex is committed to providing a company structure that will benefit the employee and the customer. If you are considering becoming a Cal-Tex employee or customer, consider the benefits of being a part of a company that is 97% employee-owned and 100% dedicated. What is an ESOP? An ESOP is an employee benefit plan in which the company offers its employees stock, and thereby, they become partial owners of the company itself. Although some ESOPs require their employees to purchase the company’s stock, Cal-Tex provides its employee owners with their shares without charge. Our ESOP benefits the company, its employee owners and its customers. Benefits of an ESOP to ... Read More..
Topics Covered: Loren Rodgers October 3, 2011 Two M&A Transactions at MYI in One Week Documentary in Progress Department of Labor to Re-Propose Fiduciary Regulation Click here to read the the update at the NCEO website ... Read More..
Click here to read the original article at bizjournals.com For business owners who want to cash out but still oversee the direction of the company and take care of their workers, an employee stock ownership plan might be the best bet. That was the message from panelists Tuesday morning at the monthly meeting of ACG Kentucky, the local affiliate of the Association for Corporate Growth. Many entrepreneurs get caught up in the tax benefits of ESOPs, but sellers have to consider their goals, said Alan Taylor, a partner in Louisville accounting and consulting firm BKD LLP. “If you just want to cash out and go to the beach, there would be other transactions that would be better,” he said. ESOPs serve as retirement plans for employees. An ESOP, controlled by a trustee, buys all the shares of a company. Then, company profits are placed into accounts for employees, with payouts based on ... Read More..
(Why Selling Your Stock to an ESOP is Better than Selling to a Third Party) If you are the owner of a successful decorative plumbing or hardware business, sooner or later you will face the prospect of having to exit the business, either because you wish to retire or because you wish to cash in the value of what you have built up and pursue other interests. ... Read More..
National Van Lines Inc. said it has changed the company’s structure, selling itself to an employee stock ownership plan entity. The third-generation, family-run business said it has been working on transitioning to an ESOP-owned S Corp. structure since July 2010 effort to “find an ownership and liquidity succession plan that did not disrupt the culture or the people.” The ESOP structure gives National Van Lines with tax savings, improved employee benefits and financial flexibility, the Broadview-based company said in a press release. Founded in 1901 by F.J. McKee, National Van Lines began in the Chicago area as a one horse and wagon moving service and expanded to a nationwide fleet of trucks. McKee’s granddaughter, Maureen Beal, is the company’s chief executive and one of its primary shareholders. Below is a ESOP training video they created for their employees: ESOP Training Presentation Video from National Van Lines, Inc. on Vimeo. ... Read More..
Employee Stock Ownership Plans (“ESOPs”) are federally qualified employee benefit programs governed by U.S. law. Since our president and founder, John Menke, wrote some of the original ESOP legislation in 1974, more than 25 additional laws have been passed to promote and broaden the benefits of ESOPs. In general, ESOPs offer owners of companies tax efficient means to sell all or part of their shares to their employees, on a timeline of their choosing. ESOPs have the added benefit of energizing employees to increase sales and profits as these employees become “owners.” Shares sold to an ESOP are held in a trust: the employees receive beneficial ownership, while and in most instances the selling shareholder retains control. The formation of an ESOP does not preclude the company from going public or being sold at a later date. Below are ten steps to understanding, designing and implementing an ESOP that is ... Read More..
WASHINGTON, Sept. 14, 2011 /PRNewswire-USNewswire/ — Results from the Employee Ownership Foundation’s 20th Annual Economic Performance Survey of ESOP (employee stock ownership plan) companies that are members of The ESOP Association show that ESOPs, while not immune to economic developments beyond their control, have seen an upturn over the past year. The survey shows ESOP companies, by significant percentages, continue to have increased share value, better productivity, and overwhelming support among leaders of the companies. Since the survey’s beginnings 20 years ago, and the case in all the years the survey has been conducted, even in 2009, a very large majority, 92.2% of survey respondents, reported that creating employee ownership through an ESOP was “a good business decision that has helped the company.” In addition, 72.9% of respondents indicated the ESOP positively affected the overall productivity of the employees. In terms of profitability and revenue, both were up from previous ... Read More..
Distributions from an ESOP in the form of shares of company stock have many advantages. One of the compelling reasons for making distribution in the form of company stock, for example, is that distributions in the form of company stock enable participants to have a portion of their distribution taxed at long term capital gains tax rates rather than having the entire distribution taxed at ordinary income tax rates. This tax benefit derives from IRC Section 402(e)(4)(B), which provides that the employee will not be taxed at the time of distribution on the net unrealized appreciation attributable to employer securities. The result is that the employee pays tax on the cumulative cost basis of the employer securities at the time of distribution, and pays a long term capital gains tax on the appreciation at the time that the stock is sold back to the plan or to the company, as ... Read More..
NOVEMBER 1, 2004 The following article was originally published in Bloomberg Businessweek and written by Amey Stone Employee ownership can be a powerful tool Last November the 100 employees of Superior Plumbing & Heating, a mechanical contractor in Anchorage, Alaska, gathered on the snow-covered ground to celebrate their new status as full owners of the $20 million company. Cutting the ribbon and symbolically reopening the company was Jan Van Den Top, the 60-year-old president, who had sold his shares to the company’s employee stock ownership plan (ESOP). Van Den Top started the ESOP in 1995, contributing 42% of his shares as retirement perks for employees. In 2003 he learned of changes in the tax code that give generous breaks to S corporations that are fully employee-owned. He sold the rest of his shares to the ESOP, then switched Superior from a C corp to an S corp. The tax advantages ... Read More..
For additional information, contact: Angie Lamielle, Senior Marketing Associate 330-684-4002 email@example.com For Immediate Release: Monday, June 06, 2011 The Will-Burt Company is celebrating its 25th year as an Employee Owned Company. Will-Burt employees have been participating in the Employee Stock Ownership Program (ESOP) since its inception on December 31, 1985. Will-Burt will be holding a celebration for its employees and retirees on June 16, 2011 with a special recognition for over 60 employees who have participated in the ESOP for all 25 years. A short history of the Will-Burt Company since becoming an ESOP… 1990’s – The Night Scan line of emergency light towers begins to set the standard in vehicle-mounted emergency lighting. Contract manufacturing work for Caterpillar and Volvo begins to steadily increase in addition to contracts with Gerlach and Phoenix Mold & Die. Will-Burt receives the ISO 9001 designation for quality in 1994. A 140,000 square foot expansion ... Read More..
A “perfect storm” has hit the U.S. economy and its privately-held businesses. Consumer purchasing power has dried up, resulting in reduced revenues for almost all privately-held businesses. At the same time most banks have stopped or curtailed lending, and bank credit is no longer available to many businesses. During the past two quarters many businesses have downsized their operations and have implemented reductions-in-force, yet they are still faced with negative cash flows. Fortunately, there is a perfect solution to the negative cash flow problem that many businesses will experience for the rest of this year and most of next year. That solution utilizes a well-known tool that has been part of the tax code for over 35 years. It is a tool that is relatively inexpensive to implement and does not require the use of outside lenders or expensive factoring companies. The solution is to implement a Salary Reduction Employee ... Read More..
Background One of the concerns that arises in the case of a company that is 100% owned by its ESOP (or where an ESOP owns less than 100% of the outstanding stock, all of the stock held by the ESOP is allocated, and the ESOP will not be acquiring any additional stock) is that once all of the outstanding shares have been allocated to the participants, there will be no stock left to allocate to new participants, except for (a) small amounts of annual forfeitures from former participants who were not fully vested and (b) vested shares that are repurchased from former participants and reallocated to current participants. Assuming that the company continues to make cash contributions to the plan after all shares of company stock have been allocated, new hires will receive pro rata allocations of cash contributions, but will not receive any allocations of company stock. Possible Solutions ... Read More..
A “perfect storm” has hit the U. S. economy and its privately-held businesses. Consumer purchasing power has dried up, resulting in reduced revenues for almost all privately-held businesses. At the same time most banks have stopped or curtailed lending, and bank credit is no longer available to many businesses. ... Read More..
Virtually every ESOP appraisal that has been written in the past 10 years has concluded that, both in the case of purchases of company stock by an ESOP from direct shareholders and in the case of subsequent distributions and repurchases of company stock to and from plan participants, the discount for lack of marketability is greatly diminished by virtue of the ESOP “put option.” This article reviews the origin and development of the put option argument in the appraisal literature and concludes that (1) the put option argument is fallacious with respect to purchases of company stock from direct shareholders and (2) nevertheless, there should be no marketability discount with respect to purchases of company stock from direct shareholders. The issue of marketability discounts in ESOP transactions is an issue that has been crying out for clarification ever since the Eyler case was decided by the Tax Court in 1995 ... Read More..
Click here to launch the presentation ... Read More..
Click here to begin the presentation ... Read More..
Click here to begin the presentation ... Read More..
Click here to begin the presentation ... Read More..
Click here to begin the presentation ... Read More..
Click here to begin the presentation ... Read More..
Click here to begin the presentation ... Read More..
Here is a video posted by one of The Menke Group’s Clients: WinSystems, an embedded PC designer and manufacturer, provides a high level of quality and customer service through an Employee Stock Ownership Plan (ESOP). This leads to employees holding a direct stake in maintaining a high level of customer service. Here is the full press-release: WinSystems Adopts Employee Stock Ownership Plan September 19, 2007, Embedded Systems Conference, Boston, MA Jerry Winfield, President of WinSystems, today announced that the company has instituted an Employee Stock Ownership Plan (ESOP) and now joins a growing list of successful companies whose employees are stockholders. This corporate structure offers stability and longevity for the WinSystems Corporation insuring long-term availability of products for our customers. This is very important for industrial OEMs using embedded PC technology for their ongoing and future applications. “Acquisitions happen during a market consolidation or when an owner seeks an exit ... Read More..
Click here to Launch the Presentation ... Read More..
Click here to Launch the Presentation ... Read More..
The exit strategies available to owners of electrical wholesaling firms are somewhat limited. The available strategies include selling the business to a competitor, selling the business to the management employees, or selling the business to all of its employees under the provisions of an Employee Stock Ownership Plan (“ESOP”). ... Read More..
Click here to download the full article in pdf format ESOPs were first authorized by federal legislation in 1974. Since that date, there have been more than 25 separate pieces of legislation that have further defined what an ESOP is and what an ESOP is permitted to do. Despite this fact, there are more misconceptions about ESOPs than about any of the other similar financial tools that exist in the marketplace. The following describes some of the more prevalent myths and misconceptions regarding ESOPs. Hopefully, the explanations provided below will help to dispel many of the misconceptions that currently exist regarding these matters. Misconception # 1 ESOPs can only be adopted by regular C corporations False. More than half of all new ESOPs are installed by S corporations. Originally, ESOPs could only be adopted by regular C corporations. However, as a result of legislation in 1996, ESOPs can now also ... Read More..
USES OF AN ESOP A Readily Available Market for Controlling Shareholders Frequently, controlling shareholders desire to sell a part of their shares in order to diversity their holdings, or to provide liquidity for investment or estate planning purposes. Usually, however, there is no market for the sale of a minority interest in a closely-held company. The adoption of an ESOP solves this problem by providing a readily available market for the purchase of shares from controlling shareholders. Moreover, the ESOP enables a shareholder to sell tax-free, provided that the ESOP acquires at least 30% of the outstanding shares. A great deal of flexibility is available in structuring sales to the ESOP. If a shareholder desires immediate liquidity, the plan may obtain a bank loan and purchase the shares for cash. If a shareholder does not need immediate liquidity, he may defer the tax on the sale by selling his shares ... Read More..
WHAT IS AN ESOP? The best way to explain an ESOP is to compare it to a profit sharing plan. ESOPs can do all the things a profit sharing plan can do. However, ESOPs can do a great many things that profit sharing plans cannot do. Profit sharing plans are regarded primarily as employee benefit plans. The ESOP is primarily regarded as a “tool of corporate finance,” according to IRS rulings and regulations. Accordingly, ESOPs are permitted under profit sharing plans. If one carefully analyzes the pros and cons of ESOPs versus profit sharing plans, the ESOP is almost always more beneficial both for the employees, the company, and the shareholders. SHAREHOLDER BENEFITS In the case of a profit sharing plan, the contribution is usually in cash, and the cash is invested in other investments. As a result, these contributions do not benefit either the corporation or the shareholders. In ... Read More..
USING ESOPS TO IMPROVE EMPLOYEE PRODUCTIVITY You’ve read about them—companies that seem to have found the key to success in an unstable business environment: “Sales Jump 312% as Employees Learn Rules of the Game” at Springfield Remanufacturing Corporation in Missouri. Management Accounting. Inc. magazine awards its Entrepreneur of the Year award to all 240 owner-employees of the Connecticut firm Reflexite, Inc. Out of 2,700 private companies evaluated, 4 of the 5 finalists had substantial employee ownership. Inc. ... Read More..
S. 1612 – The ESOP Promotion and Improvement Act of 2009: On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration. One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash. Two, S.1612 would clarifY that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax. Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the ... Read More..
Fall 2010 Written by Loren Rogers In a project funded by the Employee Ownership Foundation, the NCEO did an extensive analysis of ESOP companies using data from the US Department of Labor. Unlike prior research, the study carefully compiled data from multiple plans within a single company and used multiple years of data for each plan. It concluded that ESOP companies are more likely to offer a second defined contribution (DC) plan than non-ESOP companies are to offer any DC plan at all. ESOP companies also contribute substantially more to their ESOPs than companies with non-ESOP DC plans contribute to their DC plans. The average ESOP participant has 20% more DC assets than the average participant in a non-ESOP DC plan, and those assets are much more likely to come from the company. Considering only DC assets originally contributed by the company, ESOP participants have approximately 2.2 times as much ... Read More..
August 11, 2010 The ESOP Association and the Employee Ownership Foundation released today the results of a survey conducted among the Association’s 1,400 corporate members in the first quarter of 2010 which confirms positive benchmarks for ESOP (employee stock ownership plan) companies. The company survey is conducted every five years and was last completed in 2005. Prior to 2005, the survey was completed in 2000. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and account balances. In 2010, the average age of the ESOP was reported to be 15 years as opposed to prior years where the ESOPs reporting where much younger. In addition, the average account balance has risen dramatically to $195,222.65; a much higher figure which correlates with the age of ESOPs participating in this year’s survey. The eye-opening statistics of the 2010 survey are the increase in age of the ... Read More..
Ross Group Inc of Dayton, Ohio announced that the company has formed an Employee Stock Ownership Plan (ESOP) and has joined the growing list of companies whose employees are stockholders. “When the transaction is completed,” said Mr. Mark Ross, President and CEO, “the employees of Ross Group Inc will own just under 25 percent of the Company.” Mr. Ross said, “We had an immediate need for one of our shareholders to exit, but beyond that, the ownership team wanted to find a long term solution that would provide an exit strategy alternative for the remaining owners as we neared retirement age. It seemed only right to us that the company should be sold to the employees. Without the loyalty, dedication, and hard work of this fine group of individuals, we certainly would not have grown as much as we have.” “The Plan has two objectives,” Mr. Ross indicated. “First, to ... Read More..
Wednesday, June 30, 2010 Clif Bar & Company announced the selling of family owned common stock to its employees through an employee stock ownership plan (ESOP). Employees through the ESOP own 20% of the company, while husband and wife owners Gary Erickson and Kit Crawford retain the remaining 80%. No change in management structure will take place, with Erickson and Crawford remaining majority owners and co-CEOs of the company. “All along we wanted to create a company where we would want to work,” said Crawford. “Employee ownership is one more way we could run a different kind of business: one that inspires a team of people to make the kind of delicious, nutritious food we’d like to eat, and that strives for a healthier, more sustainable world.” “By retaining private, employee ownership we will continue to have the freedom and flexibility to build a sustainable business with long-term focus for ... Read More..
FOR IMMEDIATE RELEASE Technomics, Inc. Benefits Employees with Stock Ownership Plan Arlington, VA – January 26, 2010 Rick Collins, President and CEO of Technomics, proudly informed employees on January 26, 2010 that the Company formed an Employee Stock Ownership Plan (ESOP) and, in doing so, has joined the growing list of companies whose employees are stakeholders. “The Plan has several objectives,” Mr. Collins indicated. “First, to provide ownership of the company to those that build the company; second, to provide a significant retirement benefit and a reason to want to make the company more successful; third, to provide a tool to motivate, retain and attract employees; and finally, to create a market for stock held by original owners without a sale to outside interests. The plan should result in increased employee incentives and provide them with long-term retirement benefits. We also hope the ESOP will encourage employees to create opportunities ... Read More..
Written by Phillip Swagel and Robert Carroll Executive Summary A study of a cross-section of Subchapter S firms with an Employee Stock Ownership Plan shows that S-ESOP companies performed better in 2008 compared to non-S-ESOP firms along a number of dimensions, including job creation, revenue growth, and providing for workers’ retirement security. The S-ESOPs paid their workers higher wages on average than other firms in the same industries, contributed more to their workers’ retirement security, and—crucially in a year of recession—hired workers when the overall U.S. economy was pitched downward and non-S-ESOP employers were cutting jobs. S-ESOPs help prepare ESOP participants – the workers – for a more economically secure retirement. Employee-owners accumulate shares of company stock as part of their compensation in addition to their wages and other benefits such as health insurance. This is a meaningful contrast between S-ESOPs and other firms: nearly 60 percent of working Americans do not have any ... Read More..
The ESOP – Employee Stock Ownership Plan – is, slowly, on the rise. These worker-owned businesses are more productive and could benefit the American economy. Shoppers eye goods at the bakery of King Arthur Flour Co. in Norwich, Vt. The employee-owned firm was able to expand from its niche to deliver a broad product line. Norwich, Vt. A decade ago, John Schock of Pasadena, Md., reached his mid-50s and a crossroads. He could fund his retirement by selling off his financial-services firm to another company. But he wanted to assure the future of FMS, the firm he’d founded in 1974. “If there isn’t a solid succession plan for key management and staff, then a company can fail after the founder leaves,” Mr. Schock says. So he took the unconventional route: He sold FMS to his workers, all 35 of them, by creating a tax-advantaged Employee Stock Ownership Plan. They got ... Read More..
Small companies are rushing to reward workers with employee stock ownership plans as low valuations make awarding shares more attractive By Karen E. Klein Bob Moore gathered three employee shifts together last month for pizza parties to celebrate his 81st birthday. But Moore, the founder and president of Bob’s Red Mill Natural Foods in Portland, Ore., also had a surprise announcement: He was giving his 200 employees the company he founded in 1978. “I thought some of them were going to kiss me,” Moore recalls. “It went over very, very, very well.” Moore and his partners researched their retirement options for more than a decade before settling last year on an Employee Stock Ownership Plan (ESOP). An ESOP is a tax-advantaged, qualified employee retirement plan similar to a stock bonus plan except that it can borrow money. ESOPs are typically created to buy out all or part of an owner’s interest in an ... Read More..
The NCEO has just completed an analysis of Form 5500 retirement plan filings filed by ESOP companies. The Form 5500 data are prone to considerable reporting and transcription error and should be used with caution, but many of the results described below are in accord with prior research, with our experience, and with best estimates from practitioners in the field. Among the companies studied, the average value of plan assets per participant is approximately $46,000. This compares to the average of $47,680 reported for the state of Washington in 1995 (See Wealth and Income Consequences of Employee Ownership by Peter Kardas, Adria Scharf, and Jim Keough, (Oakland, CA: National Center for Employee Ownership, 1998) and to an average 401(k) account balance of $58,000 in 2005 computed by the Employee Benefit Research Institute and Investment Company Institute. However, typically only one-third or less of 401(k) plan balances are attributable to company ... Read More..
Dear Business Owner, Would you be interested in selling part or all of your stock in your company if you could sell it for more than twice what it is currently worth? Case Study I: The Benefits of a Gradual Sale to an ESOP We recently helped one of our clients do just that. Company X is a successful home health care company whose sales and profits have been growing at 15% per annum. The owner recently turned down an offer to sell his entire company for $6 million. Instead of selling the entire company now, we structured a transaction whereby the owner will sell 10% of his stock each year to an ESOP over the next ten years. As a result of selling his stock on a year-by-year basis at increasing prices each year, the owner of this company will ultimately receive over $14 million dollars for his stock. This ... Read More..
Dear Reader: As president of Menke & Associates, Inc., I believe there is significant untapped growth potential in most privately held companies. Whether you want to sell some or all of your stock in the company in the next five years or whether you plan to remain active for the long term, Menke & Associates, Inc. proposes to work with you to develop a program which should help you achieve your growth potential and multiply the total value of your investment in the company. Our experience with more than 2,000 companies nationwide since 1974 proves to us that only on-site, hands-on owners consistently tap the energy, unlock the ingenuity, and muster the commitment necessary to make a business successful. After all, who cares whether the business succeeds or fails? Only owners really care. Over the past 35 years more than 40,000 U.S. company owners have taken advantage of this opportunity ... Read More..
The First ESOP (1956) San Francisco lawyer and economist Louis O. Kelso created the first employee stock ownership plan (ESOP) in 1956 as a way to transition ownership of Peninsula Newspapers, Inc. from its two founders (both then in their 80s) to their chosen successors, the managers and employees. Kelso had long believed that the company’s own employees should be the logical buyers and the ultimate owners; they were the ones who made the business successful in the first place, and the ones who knew the ins and outs of the business better than anyone else in the industry. The two founders had long wanted their employees to inherit ownership. They had promised that when the time came for them to retire, the employees would have the first right of refusal. They had seen too many of their competitors gobbled up by large newspaper chains, and they had seen the ... Read More..
Dear Business Owner, This may be the opportune time to take action to avoid the increase in capital gains tax rates that will take effect after 2010. As you may know, the Bush tax rate cuts, including the current 15% capital gains tax rate, are slated to expire at the end of 2010. In addition, if the U.S. economy starts to turn around in the third or fourth quarter of this year, we believe there is a strong possibility that the Obama budget for 2010 will propose an increase in the capital gains tax rate starting in 2010 rather than in 2011. Assuming that you have an interest in locking in the capital gains tax at the current rate but do not wish to sell your entire company to a third party, there are two tax strategies that you can use to lock in the current capital gains tax rate, ... Read More..
I. INCREASES IN CONTRIBUTION, DEDUCTION AND BENEFIT LIMITS Contribution Deduction Limits. The limit on an employer’s deduction for contributions to a non-leveraged ESOP or a profit sharing plan is increased from 15% to 25% of participants’ aggregate compensation. 401(k) deferrals are not counted for purposes of the deduction limits. However, 401(k) deferrals will be included for purposes of calculating the compensation on which this limit is based. The deduction limit for money purchase pension plans remains at 25%. Effective: Taxable years beginning after 2001. Individual Benefit and Contribution Limits. The dollar limit on “annual additions” to a participant’s account in an ESOP, profit sharing, 401(k) or other defined contribution plan is increased to $40,000 in 2002. The alternative limit of 25% of compensation is increased to 100%. Effective: Limitation years beginning after 2001. Annual Compensation. The maximum annual compensation of a participant that may be used to calculate contributions and ... Read More..
Comparison of Old and New Provisions Current Law New Law (EGTRRA) I. Increases in Contribution, Deduction and Benefit Limits Contribution Deduction Limits: An employer’s deduction for contributions (including 401(k) deferral contributions) to a profit sharing or stock bonus plan is limited to 15% of participants’ taxable compensation. The money purchase plan limit is 25%. The 15% deduction limit is increased to 25%. 401(k) deferrals do not count against the limit. Compensation used to determine deductions includes deferrals. Money purchase plan limit remains at 25%. Effective: Employer’s taxable years beginning after December 31, 2001 Individual Benefit and Contribution Limits: Allocations of employer and employee contributions and forfeitures in a profit sharing, 401(k) or other defined contribution plan cannot be greater than the lesser of (i) 25% of gross pay or (ii) $35,000 (indexed). Allocations of employer and employee contributions and forfeitures cannot be greater than the lesser of (i) 100% of gross pay or (ii) $40,000 (indexed). Effective: Limitation years beginning after December 31, 2001 Annual Compensation: Currently a ... Read More..
MEMORANDUM TO: ALL CLIENTS FROM: MENKE & ASSOCIATES, INC. LEGAL DEPARTMENT DATE: JULY 18, 2001 SUBJECT: NEW “REQUIRED MINIMUM DISTRIBUTION” RULES Depending on the terms of your Plan, participants who are age 70½ or older, are generally required to receive a distribution from the Plan every year. We will refer to this type of a distribution as a “Required Minimum Distribution” or “RMD”. Under the old rules, the annual amount of the RMD was calculated using life expectancy tables, but only after determining the participant’s beneficiary and the beneficiary’s age. In addition, the old rules included a cumbersome election concerning the method of determining the life expectancy. The IRS has recently issued newly proposed rules which adopt a simpler method for calculating the amount of the RMD. In almost all circumstances, one “Uniform Table” will be used for calculating a participant’s RMD. The new calculation rules will no longer consider who ... Read More..
MEMORANDUM TO: ALL CLIENTS FROM: LEGAL DEPARTMENT DATE: JULY 18, 2001 RE: NEW REQUIREMENTS ON FIDELITY BONDING FOR QUALIFIED EMPLOYEE BENEFIT PLANS I. BACKGROUND Current regulations under ERISA require generally that all Employee Benefit Plans engage an Independent Qualified Public Accountant ( IQPA) to perform an annual audit of the Plan, and to include that accountant’s report as part of the Plan’s annual report. An exemption to this requirement has been given to small pension plans with less than 100 participants generally, due to the cost of an annual independent audit. Due to recent losses to small plans because of fraud or theft on the part of Plan Fiduciaries, the Department of Labor has come under pressure to take steps to insure that small plans assets are protected. In order to take steps to protect the participants of small plans, while not causing undue costs on small plans, the following ... Read More..
Capitalism collapsed in the fall of 2008. It’s collapse was also the direct result of a flaw in the system. Capitalism promised universal opportunity and a rising tide for everyone. To achieve this result, capitalism privatized and/or deregulated every possible industry. It glorified greed, extravagant executive compensation, and financial manipulation. Just as in the case of communism, it failed to place any real purchasing power into the hands of the workers. Over the past 20 years, the economic purchasing power of U.S. workers has decreased by an alarming percentage, despite the overall growth of the U.S. economy. U.S. capitalism delayed the day of reckoning by devising a host of innovative but lethal financial tools such as subprime mortages, negative amortization loans, and credit cards and automibile loans that were issued with no questions asked. Now that the bubble has burst, the Goverment’s only solution seems to be a massive “stimulus” ... Read More..
Information in this booklet has been developed for those owners of privately-held businesses who are interested in liquefying some portion of the equity which has accumulated in their companies. We have assumed that many of our readers may be interested in accomplishing this objective without sacrificing the identity of their companies, jeopardizing the jobs of valued employees or relinquishing control of the companies they own. An ESOP installation may provide the optimal solution for business owners hoping to achieve all of these goals. An ESOP (Employee Stock Ownership Plan) is a powerful and versatile business and financial tool which can help a business owner to accomplish the following: The ESOP trust establishes the fair market value of the company’s privately-held stock and it also functions as the marketplace for that stock. ESOPs assure flexibility by allowing an owner to liquefy whatever portion of his ownership he chooses. The owner does not ... Read More..
Click here to launch the presentation ... Read More..
CONTRIBUTION AND ALLOCATION LIMITATIONS FOR PLAN YEARS ENDING IN 2009 Date: January 2010 C CORPORATION CONTRIBUTION LIMITATIONS (Sec. 404 of the Code): Example: (The Sec. 404 limit is calculated for all employer plans in the aggregate.) Sec. 404 Gross Compensation 1 $245,000.00 Less Sec. 401(k) Salary Reduction 0.00 Less Sec. 125 Salary Reduction 0.00 Net Compensation $245,000.00 x 25% (or 50% if the ESOP is leveraged)2 x 25% Maximum Total Contribution to All Plans 3 $61,250.00 Less Sec. 401(k) Salary Reduction 0.00 Less Employer Matching Contribution ( 2,000.00) Less Employer Discretionary Contribution ( 2,000.00) Maximum ESOP Contribution (Sec. 404) $57,250.00 It should be noted that compensation in excess of $245,000 per individual is excluded for purposes of Sec. 404, but not for purposes of Sec. 415. In the case of C corporation, company contributions are limited to 25% of eligible payroll, provided that the ESOP is not leveraged. If the ESOP is ... Read More..
Economic Stimulation and Solutions for Creating New American Jobs and for Protecting Existing American Jobs By John D. Menke, Esq. Historical Background of the American Dream Since the very founding of the original thirteen colonies, America has always been known as the land of economic opportunity and as the most capitalistic country on the face of the earth. During the 1700s and the 1800s, immigrants by the millions came to our shores in search of the opportunity to participate in the American dream the opportunity to find a job and then later to become the owner of a farm, a ranch or a small business. During most of the history of this country, Americans by the millions were able to realize their dreams. Although initially most had to work long hours in low paying jobs, many were eventually able to become capital owners. Over the last thirty years, however, this ... Read More..
Approximately 97 percent of our nation’s businesses are privately-held. In spite of this, charitable and tax-exempt organizations have not achieved particularly significant results in securing major gift income from owners of closely-held companies. The reasons for this apparent oversight may be understandable. Although small business owners may head enterprises worth substantial amounts of money, frequently, the bulk of their net worth can be tied up in the companies they own. Thus, even if owners of closely-held companies express an interest in philanthropy, the chances are their gifts might need to be funded with closely-held stock. It is this which poses two problems: Stock issued by privately-held companies can be very difficult to value. In addition, there is usually no ready market for privately-held securities. There is a related problem. In many instances the business owner may have held this stock for a prolonged period; and during that time, the stock ... Read More..
By John D. Menke Although the Employee Stock Ownership Plan (“ESOP”) concept continues to enjoy bipartisan support in Congress, this support is still not deep. Current support for the tax incentives that are essential to the adoption of new ESOPs comes from only a handful of key members of the House and the Senate.Meanwhile, during recent years many ESOP allies have retired or lost their seats. We now have fewer ESOP supporters than at any time during the last 20 years. This problem is compounded by the following unfortunate facts: First, most Congressional representatives rely heavily upon staff to advise them on proposed bills. These aides are recent university graduates with little or no knowledge of ESOPs; moreover, they tend to serve only a year or two before moving on to the private sector. Given their lack of knowledge of the benefits that ESOPs provide to American workers and business ... Read More..