Articles Discussing Employee Coverage Under ERISA.

Tax incentive enacted by Congress to promote increased use of employee stock ownership plans include advantages for the sponsoring company and the participating employees. This article reviews some key incentives.

Perhaps one of the most powerful tax and business succession planning tools available to shareholders of a closely held company is the ability to sell stock to a trust created pursuant to an employee stock ownership plan (“ESOP”) and defer or permanently avoid taxation on any gain resulting from the sale.

An employee stock ownership plan (“ESOP”) is an employee benefit plan qualified for tax-favored treatment under the Internal Revenue Code of 1986, as amended (the “Code”). A plan is “qualified” if it complies with various participation, vesting, distribution, and other rules established by the Code.

Providing a specific, stringent pleading standard for claims alleging breach of the duty of prudence against fiduciaries who manage employee stock ownership plans (ESOPs), the U.S. Supreme Court again has reversed the Ninth Circuit Court of Appeals, in Amgen Inc. v. Harris, No. 15-278 (Jan. 25, 2016), because of its failure to apply the proper pleading standard for such claims.

For the second time in Amgen Inc. v. Harris, the Supreme Court reversed the Ninth Circuit because of its failure to apply the proper pleading standard for claims alleging breach of the duty of prudence against fiduciaries who manage employee stock ownership plans (ESOPs). The Supreme Court’s opinion sets forth a specific, stringent pleading standard for such claims – though questions remain as to how strictly lower courts will interpret that standard. The opinion also shows that it will be strategically advantageous for defendants to attack claims against ESOP fiduciaries at the pleading stage.

On June 25, 2014, the U.S. Supreme Court issued a decision that gives comfort to “stock-drop” plaintiffs and may cause shockwaves among employee stock ownership plan (ESOP) fiduciary committees. In Fifth Third Bancorp v. Dudenhoeffer,1 the Court held that ESOP fiduciaries are not entitled to any “presumption of prudence” in lawsuits challenging their decision to invest plan assets in company stock. Instead, ESOP fiduciaries “are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.”

You may have heard of them, but may not fully appreciate or understand how an Employee Stock Ownership Plan or “ESOP” could help you meet your business planning goals.

Earlier this week, the U.S. Department of Labor held a ceremony at which Secretary of Labor Hilda Solis signed a memorandum of understanding with the Internal Revenue Service to “improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections.” The DOL also signed or has agreed to sign memorandums of understanding with officials in 11 states to coordinate efforts to crack down on independent contractor misclassification, including Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington.