Prohibited Transactions

Employee Stock Ownership Plans (ESOPs) are becoming a popular—and tax effective—way for companies to manage succession planning. When structured properly an ESOP can provide huge financial benefits to companies and their employees alike. There have been several craft brewers who have taken advantage of the ESOP structure in the past year, and we expect this trend to pique the interest of craft distilleries. In this article, originally published in Artisan Spirit, Marc E. Sorini and Emily Rickard explore at a very high level some of the issues involved with starting and maintaining a craft distillery ESOP.

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Offering employer stock in a 401(k) plan investment lineup can seem like a win-win situation. It can enable employees to become company owners—real, skin-in-the-game, participants in their employer’s economic future—through a simple deferral election. The U.S. Supreme Court has even recognized the value of employer stock funds, confirming that Congress sought to encourage their creation through provisions and standards contained in the Employee Retirement Income Security Act of 1974 (“ERISA”).

However, in the wake of a series of high-profile employee lawsuits seeking recovery against Enron, Lehman Brothers, and other employers for losses from 401(k) investments in employer stock, such funds can—almost as easily—seem a recipe for disaster. This article examines the quandary that employer stock funds pose for plan sponsors, who must navigate ERISA’s careful balance of (1) ensuring fair and prompt enforcement of employee rights under employer-provided retirement plans while (2) encouraging employer creation of these plans.

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Originally published in Bloomberg Law, May 25, 2017