2014 Tax Reform Proposals

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..

Fast Cuts Edits Announces 100% Employee Ownership Through New ESOP

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..

2014 Cost-of-Living Adjustments

The following is a list of affected sections of the Code and the 2014 limitations of interest to the ESOP community Code Section Description 2014 Limitations 2013 Limitations 401(a)(17) Limit on the amount of annual compensation taken into account $260,000 $255,000 402(g)(1) Limitation on the exclusion for elective deferrals described in Section 402(g)(3) of the Code $17,500 $17,500 404(l) Limitation on the amount of annual compensation taken into account $260,000 $255,000 409(o)(1)(C)(ii) Dollar amount for determining the maximum account balance in an ESOP subject to 5 year distribution periodDollar amount used to determine the lengthening of the 5 year distribution period $1,050,000$210,000 $1,035,000$205,000 414(q)(1)(B) Limitation used in the definition of “highly compensated employee” $115,000 $115,000 414(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 $5,500 $5,500 414(v)(2)(B)(ii) Dollar limitation for catch-up contributions to an ... Read More..

Tax Alert: Capital Gains Rates to Rise

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..

New Study Shows Jobs Grew 60% in S-ESOPs While Others Remained Flat

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..

Howard's Appliance Celebrates Being 100% Employee Owned

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 Produces Animated Film About ESOPs

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..

Legislative Information: Pro-ESOP Bill — H.R. 1244

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..

Great Falls Business Owners Explain "ESOPs"

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..

Read about the Cal-Tex Protective Coatings ESOP

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..

NCEO's: Employee Ownership Update for Oct. 3rd, 2011

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..

ACG Kentucky panel talks about benefits of ESOPs

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..

National Van Lines Becomes ESOP-Owned

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..

ESOP Companies Report Positive 2010 Even Amid Slow Economic Recovery

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..

The Joys Of An ESOP

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..

The Will-Burt Company Celebrates its 25th Anniversary as an Employee Owned Company

For additional information, contact: Angie Lamielle, Senior Marketing Associate 330-684-4002 alamielle@willburt.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..

WinSystems, an Employee-Owned Corporation on Youtube

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..

ESOP plans let founders cash out and employees cash in

By Nancy Mann Jackson, contributing writer June 17, 2010: 4:45 AM ET (CNNMoney.com) — On his 81st birthday, entrepreneur Bob Moore signed the papers to hand nearly a third of his company over to his 200 employees. But it’s a gift Moore and his three partners hope will pay off for them as well: By launching an employee stock ownership plan, they’re creating an exit strategy for themselves from the business they’ve spent the past three decades building. We’re growing old,” says Moore, who launched Bob’s Red Mill Natural Foods in 1978 in Milwaukie, Oregon. “We started wondering, ‘What are we going to do with this company?’ We could position it to sell it, but we just felt that the people in this company deserve to have it. They have made it what it is.” An ESOP allows a company to gradually buy out its existing owners. Typically, the company ... Read More..

ESOP: A New Tax Savings Tool for Owners of S Corporations

“A new dawn greets ESOP companies!” “The Holy Grail of business opportunities beckons: ESOP companies can now operate tax free!” Not since 1984, when the §1042 tax-free rollover was enacted, has the ESOP community bubbled with such enthusiasm. Under the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, (“EGTRRA”), the ESOP’s share of S corporation earnings will not be subject to federal corporate taxation or to taxation as “unrelated business income tax,” unless the ESOP runs afoul of certain “anti-abuse” provisions. Thus, in the case of an S corporation that is 100% owned by its ESOP, the company’s earnings will be entirely tax exempt. Even the least ebullient of practitioners note that fiduciaries of existing ESOPs now confront a new obligation: to assess whether electing S status would benefit the company and the trust beneficiaries. A Bit of History Until the Small Business Job Protection Act ... Read More..

ESOPs as Retirement Benefits: An Analysis of DOL Data

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..

The ESOP Association and the Employee Ownership Foundation Release Results of the 2010 ESOP Company Survey

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. Rewards Employees With Stock Ownership Plan

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..

Clif Bar Announces ESOP Program

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..

PRESS RELEASE – Technomics, Inc. Benefits Employees with Stock Ownership Plan

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..

RESILIENCE AND RETIREMENT SECURITY: Performance of S-ESOP Firms in the Recession

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..

ESOP: Employee Ownership of Companies on the Rise

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..

ESOPs on the Rise Among Small Businesses

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..

New Study Documents ESOP Account Balances

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..

The Origin and History of the ESOP and Its Future Role as a Business Succession Tool

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..