Employee Stock Ownership (ESOP)
An ESOP is a complex tax qualified retirement plan that provides business owners and employees with substantial tax and business advantages not otherwise available with other types of qualified retirement plans. In fact, Congress purposefully designed ESOPs to facilitate the tax-advantaged sale of businesses to employees and, in certain circumstances, Congress also allows ESOP-owned companies to be structured so that their corporate earnings are effectively non-taxable. But Congress grants these substantial tax benefits through a qualified retirement plan vehicle that, in addition to being subject to myriad tax requirements, is also subject to ERISA’s stringent fiduciary duties of prudence and loyalty.
Navigating ESOP’s complex tax and fiduciary issues requires specialized experience. Led by Dan Janich, the attorneys of Holifield Janich Rachal Ferrera, PLLC (“HJRF”) have been nationally recognized trusted ESOP advisors for over 25 years using innovative approaches and methodologies to guide corporate entities in all aspects of the design, establishment and implementation of ESOPs. We also have extensive experience in advising ESOP fiduciaries on their fiduciary duties, and on defending them from DOL investigations and lawsuits, e.g., using in part novel theories on ESOP note valuations, Robert Rachal recently won summary judgment and related rulings greatly limiting exposures in a lawsuit challenging the sale of one of the largest closely held ESOPs, a billion-dollar plus hotel company
Our ESOP clients include selling shareholders, lenders, trustees and plan fiduciaries. Our experience in ESOP transactions ranges from corporate acquisitions and mergers, establishment of a plan to incentivize the work force or to ease a business ownership transition and succession, as a financing tool for management and leveraged buyouts, and in connection with shareholder liquidity events.
In order to provide our clients with an integrated all-encompassing experience, we work closely with a network of other ESOP professionals such as feasibility study consultants, valuation advisors and investment bankers.
All Inclusive Representation
We work closely with our small and middle market business clients to ascertain their objectives and then devise the most appropriate strategy at every phase to meet their objectives as a plan sponsor and, where applicable, as a selling shareholder:
Establishment of the ESOP
- Feasibility study analysis
- Draw up ESOP plan and trust documents
- Draw up all ESOP transaction-related documents
Administration of the ESOP
- Advise on share distributions and repurchase procedures
- Advise on compliance with ERISA
- Advise and representation related to IRS and DOL audits
- Advise regarding issues involved in ESOP terminations
Executive Compensation for ESOP Owned Companies
- Develop key employee incentive plans for senior management that complement the operation of the ESOP
Representation of ESOP Trustees and Fiduciaries
- Provide counseling on their fiduciary obligations
- Advise on governance issues
- Provide counseling and representation in IRS and DOL audits.
Publications and Presentations
Dan Janich is actively involved in The ESOP Association and the National Center for Employee Ownership (NCEO), having served in leadership positions in ESOP trade organizations, and he is frequently called upon to speak at national and local conferences on various of issues of concern to the ESOP community. Led by Dan and Robert Rachal, attorneys at HJRF also speak and write extensively for the ABA Labor and Tax sections and the Joint Committee on Employee Benefits, on issues from tax compliance to fiduciary duties and litigation avoidance. Representative publications and presentations include:
- Robert Rachal, chapter co-author, ERISA Litigation (BNA 5th 2014) Chpt. 41 “Fiduciary Duties Regarding 401(k) & ESOP Investments in Employer Stock.
- Dan Janich, co-author on Equity Interests in Limited Liability Corporations, 20 The Journal of Employee Ownership Law and Finance 19 (Winter 2008); expanded and reprinted in Equity Compensation for Limited Liability Companies (LLCs)(NCEO, 1st 2009).
- Dan Janich, co-author on Securities Law Considerations in Decision-Maker’s Guide to Equity Compensation (NCEO, 1st 2007; updated in 2nd ed. 2011).
- Dan Janich, author of Underwater Stock Options and Repricing Strategy: Is Your Company Drowning in Confusion? 13 The Journal of Employee Ownership Law and Finance 17 (Fall 2001); reprinted in Stock Options: Beyond the Basics (NCEO, 2nd 2003), and Selected Issues in Stock Options (NCEO, 1st ed. 2004); updated in 18 The Journal of Employee Ownership Law and Finance 53 (Winter 2006); reprinted or updated in Selected Issues in Equity Compensation (NCEO, 3rd ed. 2006 – 8th ed. 2011).
- Robert Rachal, author article, “Proof of Imprudence, Causation, and Damages in Fiduciary Breach Claims Involving Plan Investments,” in Bloomberg Law Reports, Labor & Employment (February 2012).
- Robert Rachal, co-author article, “2010 Employer Stock Cases: The Good and the Better – The Defense Perspective,” in Bloomberg BNA, Pension & Benefits Daily (February 17, 2011).
- Robert Rachal, co-author article, “Plan and Corporate Governance: Protecting Your Directors and Officers From Personal Liability Under ERISA,” HR Advisor (July/August 2005).
- Dan Janich, speaker on “Is an ESOP Right for You?” at 3rd Annual Holifield Employee Benefit Seminar, Knoxville, Tennessee (September, 2016).
- Dan Janich and Robert Rachal, panel presenters at National Center for Employee Ownership (NCEO) 2016 National Conference on “ESOP Fiduciary Duties & Corporate Governance: Compliance & Litigation Perspectives” (April 2016, Minneapolis, MN).
- Dan Janich, panel presenter at NCEO Employee Ownership Conference 2015 on “The Valuation Report Checklist: What Trustees Should Look For” (March 2015, Denver, CO).
- Dan Janich, panel presenter at 2014 ESOP Association Midwest Regional Conference on “Executive Nonqualified Deferred Compensation Plans for ESOP Companies” (Sept. 2014, Oakbrook, IL).
- Robert Rachal, moderator of ABA JCEB Webinar on “It’s a New World for ESOPS: The DOL/Great Banc Fiduciary Process Agreement and Recent Court Decisions” (Oct. 2014).
- Dan Janich speaker at NCEO Employee Ownership Conference 2014 on “Compensating and Incentivizing LLC Employees Through Equity Compensation: An Attractive Alternative to ESOPs” (April 2014, Atlanta GA).
- Robert Rachal, panel presenter at ABA Employee Benefits Committee mid-winter meeting on “ESOP Litigation Update” (February, 2014, New Orleans, LA).
- Robert Rachal, speaker at ABA JCEB Teleconference on “Employee Stock Ownership Plan (“ESOP”) Litigation Trends and Hot Button Issues” (June 2013).
- Dan Janich, speaker at NCEO/Beyster Institute Employee Ownership Conference 2013 on “Compensation for Privately Held Companies: Forms of Executive Compensation” (April 2013, Seattle, WA).
- Dan Janich, panel presenter for NCEO Webinar, on “Top 10 Considerations for the Design and Roll-out of Equity Compensation Plans” (February 2012).
- Dan Janich, panel presenter at NCEO/Beyster Institute Employee Ownership Conference on “Reality TV: Lessons Learned Structuring Executive Compensation in ESOP Companies” (April 2011, Denver, CO).
- Robert Rachal, co-chair of ABA JCEB National Institute program on ERISA Litigation, and panel presenter on “Employer Stock Litigation, and Fee Litigation” (November 2011, Chicago, IL).
- Robert Rachal, panel presenter at ABA JCEB National Institute ERISA Litigation on “Employer Stock Litigation” (November 2010, Chicago, IL).
- Dan Janich, panel presenter for NCEO Webinar on “What Kind of Equity Plans are Exempt and What are Not?” and “Navigating the 409A Deferred Compensation Plan Rules” (Nov. 2009).
- Dan Janich, moderator and speaker at NCEO/Beyster Institute Employee Ownership Conference on “Stock Appreciation Rights, Phantom Stock & Warrants” (April 2009, Portland, OR).
- Dan Janich, moderator and speaker at NCEO/Beyster Institute Joint Annual Conference on “Plan Litigation and Latest Trends in Equity Compensation” (April 2008, Chicago, IL).
- Dan Janich, moderator and speaker at NCEO/Beyster Institute Joint Annual Conference on “Negotiating & Structuring Stock Compensation” (March 2007, San Diego, CA).
- Robert Rachal, speaker at ASPPA Conference, on “The DOL Speaks, on Employer Securities: Do’s and Dont’s” (Washington, D.C.) (April 2006).
- Dan Janich, panel presenter for NCEO Webinar on “Types of Equity Compensation” (April 2006).
- Robert Rachal, speaker ABA Annual Meeting, Business Law and JCEB Presentation on “Director and Officer Liability Under ERISA” (August 2003, San Francisco, CA).