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United States
The employee stock-ownership plan : a way to save for retirement
Mis en ligne le 30/01/2007
Baby-boomer entrepreneurs face a dilemma. How to cash out some of her closely held company and diversify her holdings. To set up an employee stock-ownership plan, or ESOP is a good way to help employees save for retirement and to diversify the entrepreneurs holdings.
Eileen Fisher, the New York clothing designer, faced a dilemma common to a growing number of baby-boomer entrepreneurs pondering the future of companies they built from scratch: how to cash out some of her closely held company and diversify her holdings. Last fall she found a solution. She set up an employee stock-ownership plan, or ESOP, for her 624 employees, transferring nearly a third of the shares of the company into it. The move let Ms. Fisher, 56, take out about $30 million of the value of the company in cash without incurring a big tax bill, thanks to federal tax incentives designed to encourage employee ownership. And it let her keep control of her company, Eileen Fisher Inc. For employees, ESOPs are a kind of retirement plan, invested almost exclusively in the shares of the sponsoring employer. The shares are gradually deposited into employee accounts over time; when employees leave the company or retire, they sell their shares back to the plan for cash. Eileen Fisher expects its annual contributions to the plan to be the equivalent of 14% of employees' compensation. Decades older than the 401(k) plan, ESOPs date back to the 1950s, and gained tax breaks on the theory that employee-shareholders bolster capitalism and make companies more efficient, and because, in the best case, they can help workers accumulate retirement savings. The programs have been controversial because of scattered abuses in which owners have used ESOPs to dump illiquid shares, getting cash themselves and leaving employees with worthless stock. And as retirement plans, they leave much to be desired, because employees are locked into a single stock. Thanks in part to ESOPS, high-profile corporate failures at Enron Corp. and other companies decimated employees' retirement accounts that were stuffed with company stock. But in some circumstances, ESOPs can benefit both company owners and employees. (The Wall Street Journal, 01/22/07, "Inside Eileen Fisher's Employee Stock Plan")
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