tailieunhanh - Lecture Employee benefits and retirement planning - Chapter 18: ESOP/Stock bonus plan

This chapter focuses on ESOP and stock bonus plans. The chapter begins by identifying such plans and describing when they might be used. Advantages and disadvantages are discussed next. In the section on design features, some space is given to the use of ESOP loans, allowing the employer to borrow money on a favorable basis. | A stock bonus plan is defined contribution plan similar to a profit sharing plan, except that accounts are invested in employer stock An ESOP is a stock bonus plan that the employer can use as a conduit for borrowing money from a bank What is it? Copyright 2009, The National Underwriter Company When an employer wants to provide a tax advantages way for employees to acquire company stock at a low cost to itself When shareholders would benefit from the additional market for company stock created by such plans When an employer is looking for an advantageous vehicle for borrowing money for business needs What is it indicated? Copyright 2009, The National Underwriter Company Employees receive an ownership interest in the employee company Provides performance incentive for employees Market is created for employer stock, increasing liquidity for existing shareholders Employees are not taxed until the shares are distributed Advantages Copyright 2009, The National Underwriter Company Taxation of “unrealized appreciation” can generally be deferred until shares are sold by the employee Employer receives a deduction for the contribution of cash or shares of stock Overall cost of corporate borrowing can be reduced Shareholders can obtain tax benefits by selling stock to the plan Advantages Copyright 2009, The National Underwriter Company Since the plan is qualified, all the qualified plan requirements apply Issuing shares of stock to employees “dilutes” the stock of existing shareholders and their control of the company Company stock may be a very speculative investment! Disadvantages Copyright 2009, The National Underwriter Company Participants’ accounts are stated in terms of shares of company stock Benefits generally distributed in the form of shares of company stock Dividends can be used to increase participants’ accounts or in cash Plan allocation formulas may not discriminate in favor of highly compensated employees Design Features Copyright 2009, The National Underwriter | A stock bonus plan is defined contribution plan similar to a profit sharing plan, except that accounts are invested in employer stock An ESOP is a stock bonus plan that the employer can use as a conduit for borrowing money from a bank What is it? Copyright 2009, The National Underwriter Company When an employer wants to provide a tax advantages way for employees to acquire company stock at a low cost to itself When shareholders would benefit from the additional market for company stock created by such plans When an employer is looking for an advantageous vehicle for borrowing money for business needs What is it indicated? Copyright 2009, The National Underwriter Company Employees receive an ownership interest in the employee company Provides performance incentive for employees Market is created for employer stock, increasing liquidity for existing shareholders Employees are not taxed until the shares are distributed Advantages Copyright 2009, The National Underwriter Company Taxation