Cost Accounting Standards Board Finalizes ESOP Reimbursement Rules

On May 1, after many years of uncertainty, final rules were issued by the U.S. Cost Accounting Standards Board for reimbursing ESOP companies for contributions to their plans. The final rules are very favorable to companies. An "ESOP" is defined to include any defined contribution plan designed to invest primarily in employer stock. The reimbursement is for the market value of the shares at the time a contribution is made. The cost is assignable to a cost accounting period only to the extent an allocation is made to participant accounts by the tax return filing date, including any permissible extensions. For leveraged ESOPs, the allowability of the costs follows Federal Acquisition Regulation Part 31, which allows companies to charge the costs of principal and interest on an ESOP loan provided the stock is acquired at fair market value. Dividends are allowed as a cost. The regulation does not distinguish in this regard between S and C corporations. Companies operating under an existing approved reimbursement procedure can retain that method or renegotiate under the new rules.