The effect of the Internal Revenue Code's contribution and allocation limits on leveraged ESOPs

Article Abstract:

Provisions in IRC 404 and 415 limit employees' ability to buy stock in their companies using a leveraged employee stock ownership plan (ESOP). The Section 404 provisions limit the annual contribution to an ESOP which may be considered a tax deduction, while Section 415 limits the annual amount of an ESOP and all similar employer plans which may benefit an employee. How employees can, with careful planning, use these rules to buy large amounts of ESOP stock is detailed.

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Deductible dividends in 401(k) plans

Article Abstract:

Companies can deduct dividends paid on their own stock if the stock is held in employee stock ownership plans (ESOPs) which are part of 401(k) plans, under IRC section 404(k). Benefits to restructuring 401(k) plans to include ESOPs include tax deduction and cash flow increases, plus improved financial performance and earnings per share. Distribution changes may adversely affect employees, however, so companies should evaluate carefully before restructuring.

Dividends, Pension funds, Tax deductions

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Legal due diligence in ESOP transactions

Article Abstract:

The standards being applied to due diligence undertaken for employee stock ownership plan (ESOP) transactions are becoming stricter, and ESOP trustees' financial advisers and legal counsel should be aware of the scope of these standards. Litigation addressing this issue is discussed, and a checklist provides a detailed presentation of topics that should be addressed during due diligence.

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