Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 20

These are stock bonus plans that are required to be primarily invested in “qualifying employer securities.” There is no clear definition of “primarily,” but it was generally understood to be more than 50 percent of plan assets on average over the life of the plan.³ In contrast, there is guidance on the definition of a “qualifying employer security.” Subject to some special rules for securities acquired prior to 1979, a “qualifying employer security” is any publicly traded security of the sponsor or its parent; or, for a nontraded security, it is a common stock possessing both the best dividend rights and the best voting rights of any outstanding common stock or a preferred stock convertible into such common stock.⁴

ESOPs include a number of special features:

 Leveraging—An ESOP is permitted to borrow money from a related party or guaranteed by a related party without creating a prohibited transaction, as long as the applicable ERISA rules are met.5

 This leveraging does not trigger unrelated business income.6

 The contribution made to an ESOP of a C corporation can exceed the normal deduction limits. The annual addition limit may be measured by the lesser of the employer contribution or the fair market value of the shares released.

 There are many tax incentives, which impose restrictions on the ESOP’s allocation of benefits within the trust. These restrictions are required to be included in the plan terms.

 ESOPs are not permitted to be integrated with Social Security.

 ESOPs cannot be tested for nondiscrimination using the various “safe harbors” that may be available to more traditional plans.

 ESOPs holding nontraded stock are required to have an annual appraisal of any stock acquired after December 31, 1986. For this purpose, with some exceptions, “nontraded stock” includes any shares not listed on a Securities Exchange registered under Section 6 of the Securities Exchange Act of 1934. This position was formally issued by the IRS in 2011 and is generally effective for plan years beginning on or after January 1, 2012. It means that shares that actively traded on the Over-the-Counter Bulletin Board (OTCBB) or through “pink slips” will still need an appraisal.7

 The rules for operating an ESOP may vary between ESOPs of S Corporations and those sponsored by C Corporations.

In other words, these are complex plans and the auditor is likely going to have to spend more than average time reading the plan document and becoming familiar with the plan’s operations.