Decrease in Large Public ESOPs/Cashed Out Employee Has Standing/REITs as Section 1042 Qualified Replacement Property
August 17, 2007
The August 16, 2007 NCEO Employee Ownership Update is online and discusses the following: One-Third of Large Public Companies Dropped ESOPs Between 2004 and 2005 1/3 of the largest 900 companies that had ESOPs in 2004 effectively eliminated their ESOP by the end of 2005: “Overall, about 6% of the largest companies had ESOPs in 2005, all but 17 of which own less than five percent of company stock. It is likely that the change is a direct result of concerns about legal fallout from the Enron, WorldCom, RiteAid, and other "stock drop" lawsuits that began earlier in the decade.” We previously discussed stock drop lawsuits in the following posts: Two Recent Employer Securities Court Cases Stock Drop Litigation
Third Circuit Rules Former Employee Has Standing Even Though Cashed Out of a Plan That Invested in Company Stock The Update discusses the following cases that provided that “an employee who had been cashed out of a 401(k) plan nonetheless had standing to sue over questions about the prudence of investments in company stock.”: Graden v. Conexant Systems Inc. (No. 06-2337, 7/31/07) Harzewski v. Guidant Corp. (No. 06-3752, 6/5/07)
Are REITs Qualified Replacement Property? Earlier this week we discussed Qualified Replacement Property. Generally, “shares in mutual funds and real estate investment trusts (REITs) do not qualify as Qualified Replacement Property, although shares in certain financial institutions and insurance companies may”.
However, the Update discusses how Robert Willens "argued that real estate investment trusts (REITs) that perform active and substantial management duties should be eligible as qualified replacement property under Section 1042 of the Code (the section that defines eligible investments for private C corporation owners who sell to an ESOP and take a tax deferral on the gain).”
Using a Percentage of the Company as a Guide for Equity Awards |
