Employee Stock Ownership Plans (ESOPs): Legislative History (CRS Report for Congress)
| Release Date |
May 20, 2003 |
| Report Number |
RS21526 |
| Report Type |
Report |
| Authors |
Todd S. Snyder, American Law Division |
| Source Agency |
Congressional Research Service |
Summary:
Employee Stock Ownership Plans (ESOPs) 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). (1) 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 Section 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1989, however, repealed or limited multiple ESOP tax incentives.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.
1. Â P.L. 93-406 .
