Blue Ridge ESOP Associates Industry News

Blue Ridge ESOP Associates is pleased to announce the addition of Renee M. Stadtmueller to our team as a Director of Plan Administration. Renee is a Certified Public Accountant (CPA) as well as a Qualified Pension Administrator (QPA). She has over 18 years of experience in the retirement industry and brings to Blue Ridge ESOP Associates a robust background in providing technical, administration and consulting advice to ESOP clients. Her office will be located in Menasha, Wisconsin.

This spring, our professionals will be co-presenting at multiple ESOP Association conferences on various topics. We hope to see you at one of the following conferences:

For ESOPs whose stock isn’t publicly traded, the timing rules for diversification have historically been difficult to meet.   The law says the plan has to issue notices to participants who are eligible for a diversification within 90 days after the close of the plan year.  For those electing a diversification, the plan has until 180 days from the close of the prior plan year to make the payment.  Many ESOPs are not able to get the stock appraisal and annual work done in the 90 or 180 days to comply with the law.  The industry best practice has always been to issue a preliminary notice within the 90 day window informing a diversification eligible participant of their right to diversify.  After the annual work was done, plans would then issue the actual diversification notice and make the payments as soon as feasible thereafter.

The hours of service is an important piece of information you will provide to your ESOP third party administrator (TPA) with your annual census data. An employee’s hours of service may be used to determine eligibility for participation in the ESOP and eligibility to receive allocations and to track years of service for vesting and breaks in service. Therefore, it is important to use the correct method (as defined by your Plan Document) to credit each employee with the correct number of hours.

The results of a 3 year study, recently presented at The Mid-Year Fellows Workshop in Honor of Louis O. Kelso hosted by Rutgers School of Management and Labor Relations in New Brunswick, NJ, was conducted by Suzanne Cromlish, a Ph.D. Candidate at Case Western Reserve University, discovered that ESOP acquisitions of Non-ESOP companies are extremely successful.

Founded in the 1950s, the U.S. Small Business Administration has for many years assisted in the establishment, and growth of small businesses, and the exit of business owners. The specific loan program created to provide such loans is the 7(a) program.  In the early years a SBA loan was obtained by contacting the federal government, proving a business had been declined 3 times by banks, and then getting a direct loan from the federal government.  Such “direct loans” today are made by SBA only for helping businesses after disasters. The model that has existed for recent decades is the “indirect” loan model, where the small business gets a loan from a bank (or other lender ), and the bank goes to SBA for a loan guaranty. 

Good News for Safe Harbor 401(k) Plans

The IRS has issued a proposed regulation that will permit forfeitures to be used to satisfy safe harbor contributions.  This is welcome news for 401(k) safe harbor plans that hold employer match or discretionary profit sharing money that was subject to a vesting schedule when contributed to the plan.  While many 401(k) plans permit forfeitures to be used for plan expenses or other non-safe harbor employer allocation purposes, the proposed regulation gives plan sponsors another option – use forfeitures to fund safe harbor contributions. 

Is sharing business information with employee owners dangerous? You bet. Because when you share it, employee owners:
- Learn the business’s strengths and weaknesses
- Raise questions and concerns
- May second-guess management decisions
- Can misinterpret the information and reach the wrong conclusion(s)

In addition to those challenges, the information could leak to your competitors, suppliers or customers.

Is it too dangerous to build a line of sight to performance?

Thanks to Larry Camm of Schweitzer Engineering Laboratories and ESCA for getting the U.S. Chamber of Commerce to recognize ESOPs in their legislative roadmap, Securing America's Retirement.

North Carolina has the potential to turn a grave challenge into a transformative economic opportunity. Thousands of businesses could disappear over the coming years as baby boomer entrepreneurs enter retirement, threatening to deal a heavy blow to communities across the state. However, by helping many of these firms convert into employee-owned companies, we can keep their doors open, give workers an ownership stake into their economic future, and buttress local economies.