The Internal Revenue Service issued a ruling that should make life easier for trustees of employee stock ownership plans.
In revenue ruling 95-57, announced early in August, the agency scrapped an informal, decades-old policy banning ESOP trustees from voting shares on behalf of participants who fail to specify how their shares should be voted.
The informal policy put ESOP trustees in a bind: The Labor Department requires trustees to vote such allocated but undirected shares; but ESOPs attempting to comply with the Labor Department's regulations faced the possibility of losing their tax-favored status if they did so.
Now, in the spirit of pension simplification, the administration has decided the informal policy was wrong. "We don't think the statute (which guides pass-through voting) compels the position the IRS has been informally taking all these years, nor is there a compelling policy argument for that position," explained Mark Iwry, benefits tax counsel at the Treasury Department, of which the IRS is a part.
The origin of the position lies in the agency's regulations for TRAYSOPs, or special tax reduction ESOPs that have long since been defunct. Those regulations said undirected shares could not be voted by trustees. Although the regulations applied only to the special stock ownership plans, the IRS maintained a similar reasoning should apply to the more common garden-variety leveraged ESOPs too.
