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1 1 (May 20, 2003)

handle is hein.crs/crsaiep0001 and id is 1 raw text is: Order Code RS21526 May 20, 2003 CRS Report for Congress Received through the CRS Web Employee Stock Ownership Plans (ESOPs): Legislative History Todd S. Snyder Presidential Management Intern1 American Law Division Summary Employee Stock Ownership Plans (ES OPs) are defined contribution plans primarily invested in the employer's securities. Employee stock plans in the form of an ESOP pre-date the 1974 Employee Retirement Income Security Act (ERISA).2 ERISA, however, was the first law to recognize ESOPs. Congress has routinely revisited ESOPs and amended the IRC to reflect policy. The 1975 Tax Reduction Act created a tax credit for ESOPs. The Revenue Act of 1978 added new formalities to ESOPs through creation of IRC § 409A. In the mid- 1980s, the 1984 Tax Reform Act created new and substantial tax incentives for employers maintaining ESOPs for employees. Two years later, the 1986 Tax Reform Act emphasized the retirement objective of ESOPs by imposing a 10% penalty tax on withdrawals made prior to age 59.5. The Omnibus Budget Reconciliation Act of 1989, however, repealed or limited multiple ESOP tax incentives. The Small Business Job Protection Act (SBJPA) of 1996 widened the availability of ESOPs by allowing S corporation shareholders to participate. To prevent abuse of S corporation ESOPs, the Economic Growth and Tax Relief Reconciliation of 2001 Act initiated a 50% excise tax on prohibited allocations by S corporation ESOPs. Finally, the Job Creation and Worker Assistance Act of 2002 increased the contribution limits of many qualified retirement plans, including ESOPs. Currently, an estimated 10 million employees participate in Employee Stock Ownership Plans (ESOPs).3 ESOPs are defined contribution plans primarily invested in the employer's securities. These plans are believed to further motivate employees since their financial interests are more directly linked to their employers. Both employees and employers benefit from certain tax advantages. In addition to providing employees with 1 This report was produced under the general supervision of Marie Morris, Legislative Attorney. 2 P.L. 93-406. 3 CRS Report RL30038, ESOPS: A Description and Economic Analysis, by Gerald Mayer. Congressional Research Service + The Library of Congress

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