Employee Stock Ownership Plan (ESOP)

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Allowable or Unallowable: Allowable

Source: "Cost Accounting Standards (CAS)" is not in the list of possible values (Other, FAR, DFAR) for this property., "Federal Acquisition Regulation (FAR)" is not in the list of possible values (Other, FAR, DFAR) for this property.

Contents

Definition

Employee Stock Ownership Plan (ESOP)

(i) An employee Benefit plan that is described by the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC) of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock, and

(ii) Any other deferred compensation plan designed to invest primarily in the stock of the contractor's corporation including, but not limited to, plans covered by ERISA.[1]

An ESOP is a stock bonus plan designed to invest primarily in the stock of the employer corporation.[2]

Employee Stock Ownership Plans (ESOP) [3]

Allowable or Unallowable?

Allowable

(2) Costs of ESOPs are allowable subject to the following conditions[4]:

Meet the Definition of a Pension Plan

For ESOPs that meet the definition of a Pension Plan,to be allowable, the contractor:

  • (A) Measures, assigns, and allocates the costs in accordance with 48 CFR 9904.412,
  • (B) Funds the pension costs by the time set for filing of the Federal income tax return or any extension. Pension costs assigned to a current year, but not funded by the tax return time, are not allowable in any subsequent year, and
  • (C) The incentives are in accordance with the terms and conditions of an early retirement incentive plan.

Do Not Meet the Definition of a Pension Plan

Cost of an ESOP that does not meet the definition of a Pension Plan, are allowable subject to the following conditions:

  • (ii) The contractor measures, assigns, and allocates costs in accordance with 48 CFR 9904.415.
  • (iii) Contributions by the contractor in any one year that exceed the deductibility limits of the Internal Revenue Code for that year are unallowable.
  • (iv) When the contribution is in the form of stock, the value of the stock contribution is limited to the fair market value of the stock on the date that title is effectively transferred to the trust.
  • (v) When the contribution is in the form of cash—
    • (A) Stock purchases by the ESOT in excess of fair market value are unallowable; and
    • (B) When stock purchases are in excess of fair market value, the contractor shall credit the amount of the excess to the same indirect cost pools that were charged for the ESOP contributions in the year in which the stock purchase occurs. However, when the trust purchases the stock with borrowed funds which will be repaid over a period of years by cash contributions from the contractor to the trust, the contractor shall credit the excess price over fair market value to the indirect cost pools pro rata over the period of years during which the contractor contributes the cash used by the trust to repay the loan.
  • (vi) When the fair market value of unissued stock or stock of a closely held corporation is not readily determinable, the valuation will be made on a case-by-case basis taking into consideration the guidelines for valuation used by the IRS

References and Notes

  1. ↑ CAS 415- Accounting for the costs of Deferred Compensation
  2. ↑ FAR 31.205(q)(1)
  3. ↑ FAR 31.205-6(q)
  4. ↑ FAR 31.205-6(q)(2)


Related Topics

See the Category: CAS 415 - Accounting for the Costs of Deferred Compensation

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