Employee Stock Ownership Plans (ESOPs) are qualified retirement plans that invest primarily in employer securities of the corporation that establishes the ESOP.
An ESOP is a unique planning vehicle since it is both a financial tool and a retirement plan. Congress has created many special tax incentives designed to encourage the establishment of ESOPs and the concomitant increased employee ownership by employees who are participants in the ESOP. These tax incentives, when combined with the fiduciary rules imposed on retirement plans by the Employee Retirement Income Security Act of 1974, as amended (ERISA), create a tangled web of great financial opportunity and traps for the unwary.
The ESOP practice at K&L Gates has been involved with ESOPs and related transactions since their inception and brings to bear on behalf of its clients the benefit of over 30 years of experience. The ESOP practice provides a complete range of services relating to ESOPs, including the establishment of ESOPs, the structuring of corporate transactions involving ESOPs, fiduciary issues relating to ESOPs, S-Corporations as they relate to ESOPs, and the special tax opportunities associated with ESOP transactions.
The ESOP practice assists corporations in analyzing whether an ESOP is appropriate for their particular situation. We assist the client with an analysis of the ESOP's financial impact; design and draft the ESOP if it is appropriate; obtain a favorable determination letter from the IRS regarding the ESOP's tax status; and assist the client in preparing a communications program to explain the ESOP to its employees.
The ESOP in this context may be designed to fund a corporation's match under a Section 401(k) plan, to buy out a particular shareholder, to be part of a management buyout, or just to increase the equity interest of the employees in the corporation.
The ESOP practice represents clients who are acquiring or investing in a corporation that is partially or completely owned by an ESOP. Our work in this area includes:
The ESOP practice represents major corporate fiduciaries and individual fiduciaries across the country in all types of ESOP transactions. Our representation includes representing fiduciaries in connection with the purchase and sale of employer securities by ESOPs, in going-private transactions, in restructuring of troubled corporations owned by ESOPs, in obtaining new ESOP loans, and in the refinancing of existing ESOP loans and innumerable other transactions that require the ESOP fiduciary to exercise its discretionary fiduciary judgment. The ESOP practice has developed particular experience in representing fiduciaries of large, troubled public companies and advising such fiduciaries with respect to when the fiduciary is required by the ESOP plan document or ERISA to sell the company stock owned by the ESOP. Our work in this area includes: