Thirty-nine years ago, we held our first annual conference. We had 175 attendees, including my uncle Bernie. Last year we sold out at over 1,900; this year, we were on track to sell out even sooner at over 2,000. The conference is one of the most important ways we help make employee ownership grow and thrive. It is also over one-third of our annual revenue and provides most of the profit we use to support all the other work we do, such as research and outreach, that is essential to employee ownership but does not generate revenue. We devote approximately the equivalent of three full-time staff people per year to the event. I know many of you really look forward to the conference every year, just as I do. One of my favorite spring rituals is checking in each day on how many new registrations we are getting and looking forward to reconnecting with all the inspiring people I have gotten to know over the years, as well as meeting so many new ones. I come back reenergized for another year, and it is part of why I count my ongoing role as a pretty much full-time volunteer for the NCEO as an extraordinary blessing.
A new process agreement between the Department of Labor and Farmers National Bank (FNB) was made public on February 28. It lays out a much more detailed process for evaluating whether an ESOP actually has and can pay for control. It also prevents FNB from accepting indemnification and sets new hurdles for the advancement of fees in legal cases. The agreement was included in a settlement in the case of Scalia v. The Farmers National Bank of Danville and Weddle Bros. Construction Company, No. 1:20-cv-674 (S.D. Ind. Feb 28, 2020). Process agreements apply only to the parties involved, but they may indicate how the DOL would proceed in other actions. While much of the agreement reiterates prior agreements, this new one lays out some potentially troubling issues.
Forty of the 78 employers among the 2020 Fortune 100 Best Companies to Work For that can offer stock plans have some kind of broad-based plan. Twenty-two of the organizations cannot have stock plans because they are nonprofits (mostly in health care), law or accounting firms, or a consumer cooperative (REI). The percentage of eligible companies offering these plans on the list has been around 50% since its inception.
In Jander v. Retirement Plans Committee of IBM (2nd Cir. Dec. 10, 2018), the Second Circuit ruled that the Dudenhoeffer rule that "[t]o state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it" raised conflicting standards. The court ruled that the plaintiffs in a case involving stock in IBM’s 401(k) plan had convincingly argued that early disclosure and correction of financial issues raised about accounting and other irregularities at its microelectronics division (which was ultimately sold) could have done more good than harm. The defendants appealed to the Supreme Court.
In General Legal Advice Memo 2019-03, the IRS ruled that payments from a company to a former employee under an ESOP price protection plan are immediately taxable if made directly to the employee, but not if the employer makes a special "qualified non-elective contribution" to the plan that is allocated to the former employee’s account and then distributed as part of the ultimate account distribution. Once those funds are distributed, they would be taxed under normal distribution rules.
