Employee Stock Ownership Plans (ESOPs)

Employee stock ownership plans (ESOPs) feature a variety of benefits for business owners, their companies and their employees. They allow employees to own part or all of a company through retirement accounts in a tax-exempt trust and permit a company that is 100-percent owned by its ESOP not to pay any federal and most state income taxes. Research of the more than 6,700 ESOPs in the U.S. shows that companies which cultivate an ownership-culture are more productive and profitable, grow faster, have less turnover, and generate more wealth for employees. The ESOP model also presents a number of challenges for employers, such as navigating thorny Department of Labor (DOL) and Internal Revenue Service (IRS) requirements and aggressive oversight by these federal agencies, funding the payment of ESOP benefits, and adhering to the unique terms of ESOP plan documents.

Saul Ewing Arnstein & Lehr’s ESOP attorneys help closely held companies—including S and C corporations, whether as stand-alone corporations or multi-level holding company structures—operate efficiently within the legal and regulatory parameters while they strive to grow and generate profits. With a deep understanding of the technical rules in the Internal Revenue Code and IRS regulations as well as of ERISA’s fiduciary requirements enforced by the DOL, our attorneys regularly advise clients on matters in the following areas:

• Plan design and establishment, including feasibility studies and preparation of ESOP plan documents in compliance with DOL rules and IRS qualification requirements.
• Ongoing administration and compliance, including modifications in plan design and operations to help clients sustain their ESOPs as conditions change; management of repurchase obligations; correction of operational errors; and advisement of shareholders on how to comply with Section 1042 requirements for deferring taxes on capital gains realized in a sale to an ESOP.
• Transactions, including management of ESOP transactions as counsel for a company installing an ESOP, acquiring another company, or accessing equity or debt capital. We also represent trustees when an ESOP trust is buying or selling stock.
• Federal investigations, including the representation of employers or fiduciaries in DOL investigations and IRS audits.

Providing practical counsel with creative problem-solving advice, our ESOP team includes attorneys with extensive backgrounds in plan administration and employee benefits law. As part of a full-service law firm, the team regularly coordinates with attorneys in complementary areas, including mergers and acquisitions, tax, environmental, intellectual property, labor and employment, and debt financing, to help ensure that our clients receive efficient and streamlined support to address any issues that might arise during or after an ESOP transaction.

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