From the BizEquity blog: Employee stock ownership in trouble? - 19 Dec 2008

From the BizEquity blog: Employee stock ownership in trouble?

http://blog.bizequity.com/?p=1148

We
all have money tied up in retirement plans. Employers, both big and
small, want to entice smart talent to their payrolls by offering
compensation packages that include golden-years saving schemes.
However, with bankruptcies on the rise, there’s one kind of retirement
fund that has hit the headlines…and not for a good reason, I might add.

The employee stock ownership plan, more commonly abbreviated as ESOP, was the subject of a Wall Street Journal article.
ESOPs are pretty popular financial instruments since employers can use
them as tax-advantaged vehicles which minimize borrowing costs. They’re
also popular with employees, because there aren’t many employees who
don’t want to have exposure to company equity. The dream of increasing
one’s wealth through company still exists, even post the dot-com boom
of the late 90’s.

However, as the Journal article mentions, when a bankruptcy occurs,
uncertainty can result as far as ESOPs are concerned. The problem is
that an employee is oftentimes powerless to do anything about the stock
tied up in his ESOP account. There are age restrictions to consider
(you have to be 55 to be able to dip into the account). And there are
other timing requirements, such as not being able to access the stock
until a half-decade after leaving your former employer. Such
restrictions essentially force employees into being buy-and-hold
investors. While long-term thinking is essential in investing, it’s
difficult to propose that employees sort of become market timers in a
sense — i.e., you have to hope that your stock will be worth something
decent the moment you hit retirement. It’s an interesting paradox,
because most people think of long-term investing as a less risky
proposition than short-term trading. Yet, if you are betting a part of
your compensation on your company simply because you work there, it can
be seen, from one angle, as being arbitrary and lacking in terms of due
diligence.

So, the example being proffered is Tribune. Since that media company
invoked Chapter 11 protection, employees are now wondering if they will
ever be able to extract any value from their ESOP accounts. People who
were counting on deferred compensation are likewise in limbo. There’s
simply no telling how much

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