Long-Term Ramifications of LaRue

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Tue, Sep 01, 2009
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The August 31, 2009 Employee Ownership Update is online and discusses the following:

  • Congressional Budget Office Lists ESOP Tax Benefits as Potential Cost Savings
  • Smaller Companies Have More Generous Stock Purchase Plans and Higher Participation Rates
  • Seventh Circuit to Examine Class Standing Issues Raised by LaRue Decision

The Update discusses how the U.S. Court of Appeals for the Seventh Circuit has consolidated four LaRue-related lawsuits:

The U.S. Court of Appeals for the Seventh Circuit is taking up this issue by consolidating four different lawsuits, one of which (Howell v. Motorola, No. 07-3837, consolidation order, 7th Cir., Aug. 17, 2009) involves allegations of fiduciary breaches over retaining Motorola stock in a 401(k) plan. Motorola and other defendants in the cases being consolidated argue that because individuals can now sue for recovery of losses to their own accounts, and because the individual circumstances of plan participants vary so widely, class certification is no longer appropriate.

If this argument ultimately succeeds, the ironic effect of LaRue may be that rather than making lawsuits against plan fiduciaries easier, it makes them harder, because few individual participants will have the resources to pursue this kind of litigation (indeed, LaRue himself has given up his case).

The Update also discusses CBO Option 22: End the Preferential Treatment of Dividends Paid on Stock Held in Employee Stock Ownership Plans, noting that the 188 CBO options are drawn from prior legislative proposals and are meant to be illustrative only. It also discusses a NCEO employee stock purchase plan (ESPP) survey that shows that for every increase in the size of the company, the generosity and participation in the ESPP goes down.

Topics: Studies and Statistics, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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