Attorney-at-Law

A MODEL FORM OF ESOP PLAN?

In Uncategorized on 10/28/2011 at 17:32

Mr. Donald Kieffer from IRS Employer Plans Determinations gave an interesting webinar today concerning qualification letters for ESOPs. I don’t do employee benefits work; my knowledge in the area is spotty, but one must have at least enough basic knowledge to be cognizant of pitfalls and issues. So I could justify spending the hour for an EA CPE credit-hour.

Mr. Kieffer’s PowerPoint slide and oral presentation included the possibility that IRS might consider promulgating model form ESOP plan documents, if a sufficient number of practitioners with volume practices in this area could agree that such would be a benefit.

I can advance several arguments for, and several against, the proposition. Of course, all these are my own and not anything Mr. Kieffer or his colleagues had to say.

For: It would simplify the review and determination process and help cut down the inventory of plans awaiting determination letters (currently IRS is years behind in the review and determination process, as plans, custom-tailored or not, must be individually reviewed; I understand that IRS is trying out a system of reviewing plans by batches, where the preparer certifies all are in the same form). It would open the door to more practitioners desirous of entering the field but overawed by the perceived complexity and lack of step-by-step guidance (IRS’ present guidance being directed to the seasoned practitioner). It would encourage businesses seeking to provide ESOPs for their employees, but deterred by the high cost and delays of the present system, to do so, enabling recruitment of qualified personnel and expansion of business. It would serve to alert even those practitioners not desirous of entering the field to the important issues, should they encounter a “one-off” situation in their usual practices.

Against: It would divert resources, scarce enough even with the recent personnel additions of which Mr. Kieffer spoke, from the review and determination process, with an uncertain result (the “monument in the desert” syndrome–they built it, and nobody came). Getting agreement from even a plurality of the regular practitioners would be a time-consuming process; being busy with revenue-generating work, knowledgeable preparer participation with the commitment required may be less than needed. If the taxpayers who are paying for the handcrafted plans discover that an off-the-shelf takes half the time for the same result, the diminution in compensation will hardly encourage volume preparer participation. Even if a model set of forms could be developed and accepted both by IRS and the preparer community, no one can guarantee that Congress won’t enact legislation making the model forms instantly obsolete (shades of Christy & Swan Profit-Sharing Plan, 2011 T.C. Mem.62, filed 3/15/11, and my blogpost “Maybe Not So Obvious”, 8/28/11). Finally, Mr. Kieffer and I agree upon H. G. Wells’ famous proposition: “There is no passion, neither love nor hate, equal to the passion for altering someone else’s draft.” Will the model, once adopted, be so quickly  revised by practitioners that very little of the original will be left?

I’d like to hear what practitioners in the employee benefits area have to say.

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