RSM McGladrey ESOP Blog

Here is a “whoopsy” by the IRS

Whenever I make a mistake, I call it a “whoopsy.” Well, here is a “whoopsy” by the IRS. Check out the first sentence of this - Sample Plan Language under Code §409(p) for the Transfer of an ESOP’s S Corporation Shares

Now for those of you S corporation ESOPs out there, you probably know that Code Section 409(p) was enacted long before the Pension Protection Act of 2006. In fact, Code Section 409(p) was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001.

I guess I will give the IRS a pass on this “whoopsy” if they will give one pass each to any of my clients who encounter difficulties satisfying 409(p).

More on the actual proposed plan document language later…

Have a great 4th of July holiday weekend!!

Have you registered for the ESOP Sustainability Seminar

Oh my, this summer is going by so quickly. I can’t believe it is July 1st.

If you are feeling the same way, you may not have yet registered for the ESOP Sustainability Seminar later this month. Please consider doing so before you break for the July 4th holiday. I don’t think I will be able to attend due to a scheduling conflict but I do think it will be an excellent discussion on a variety of very pertinent topics –

 This one day seminar will focus on issues facing ESOP companies in sustaining its employee ownership structure. 
 The understanding of how increasing shareholder value impacts repurchase obligation will be addressed. 
 Also studied and shared with attendees will be the issues of corporate governance and management succession as well as how to keep enthusiasm strong among employee owners when the understanding of the ESOP varies by individual employee.

You can register now at esopassocation.org.

The next generation of employee owners

I attended a meeting of the Partners in our Firm this week. We had an excellent guest speaker – Rebecca Ryan of Next Generation Consulting.

She spoke to us on the issues revolving around the differences in generations. Our Firm is led mostly by baby boomers but have a great deal of employees from the younger generations. And naturally there tend to be clashes between the generations. 

Her presentation was excellent and I think a lot of us recognized that the behavior of the younger generations is not “wrong” while ours is “right” but just “different.”

I am sure that ESOP companies face these same issues and I am even wondering if there is a different perception of the value of the ownership among the generations. What are your thoughts?

Here is yet another positive ESOP story

I wish these positive stories got as much coverage as the negative ones – Passing torch to those who made your business work

There are multiple wonderful points in this story. The first is about the concern of the selling shareholder for his employees and the community – "If I sold to 'ABC Company,' I may have gotten more faster. But I want, and the new owners want, this company to stay in New Ulm."

Another is about the activities of the Northland Institute to provide assistance in these transitions - Northland's Minnesota Employee Ownership Fund will offer subordinate loans of as much as $1 million in cooperation with local banks to help small-business owners gradually sell their businesses to ESOPs.

The secret to increasing sales

I can’t think of a company who doesn’t want to increase its sales. Well, employee ownership appears to do just that - New Research Confirms Majority-Owned ESOPs More Productive Than Non-ESOP Counterparts

Recent research by Brent Kramer, a doctoral candidate at the City University of New York, "provides strong evidence that majority employee-owned businesses have a significant advantage over comparable traditionally-owned businesses in sales per employee." The average advantage, $44,500, means that a typical 200 person ESOP firm could be expected to have an almost $9 million annual sales advantage over its non-ESOP counterpart.

That would appear to be a pretty significant increase in sales – what has been your experience?

Can your employees’ ESOP accounts be compared to a shiny suitcase full of $$?

I will admit that I have watched an episode or two of “Deal or No Deal.” So I thought this idea of comparing an ESOP account to one of those shiny suitcases was pretty clever - "Deal or No Deal?" An Unspoken ESOP Question

So what other ideas have you seen used that involve a trendy television show, movie or other form of entertainment? 

Change in the Form 1099 Reporting of Dividends

If you are a C corporation sponsoring an ESOP and you pass through dividends to your participants, you probably know that you have been reporting these dividends on Form 1099 DIV whether paid directly by the corporation or through the ESOP.

Well, the IRS has decided to change the reporting of these dividend payments if they are paid through the ESOP – IRS Changes Reporting Requirements for Dividends on ESOP Distributions

If the payments come directly from the corporation, it appears the reporting will remain on Form 1099 DIV.

This change will be effective for distributions made in 2009.

Wise words on employee ownership

I read these words and knew that I had to share them.

It would be idle to pretend that employee ownership is an easy option. People unused to having their personal judgment queried have to cope with the consensual mode essential to good teamwork.

Boards have to get their heads round elected employee directors sitting round the same table. People used to just clocking in and out have to accept responsibilities as well as shares.

There is no immunity from market fluctuation, as a company highly dependent on salmon prices knows only too well. And there is a price to pay for being committed to sustainability, which means, in the case of Loch Fyne Oysters, not using wild fish while stocks are threatened, and only using the farmed variety where the conditions neither encourage parasites nor require polluting chemicals to control them.

But how sweet must be the upside: working in a community and working for the community. Working for a team whose values you share and respect. Having an environment where sharing information about financial progress and strategic ambitions is considered the civilised norm.

As a man who's spent chunks of his life in America and China, Erdal has seen the corrosive effects of both rampant capitalism and "proletarian" dictatorships.

Employee ownership, he argues, gives people more satisfying working lives than they ever thought possible.