Compliance July 7, 2002

STOCKING UP? – New Bill Would Expand Stock Option Access, Benefits

July 31, 2000 (PLANSPONSOR.com) - A new bill introduced in the House of Representatives would allow the use of pre-tax employee contributions to buy company stock options, while providing a deduction for the employer when the option was exercised.
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The bill (HR 4972) was just introduced by House Ways and Means Committee member Amo Houghton (R-NY) in an attempt to encourage a broader participation in employee stock option plans.

The proposal would allow employees to contribute up to $10,000 a year to a stock option plan, deferring tax until the stock is sold. The contribution basis would be taxed at ordinary income rates, excess gain as a capital gain, according to BNA’s Pension and Benefits Daily.

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The employer would receive a deduction for the value of the stock when the option is exercised.

“The deferral aspect would provide a powerful incentive to the employee to hold the stock for a longer term,” Houghton said in an introductory statement. “Importantly, the employee pays for the stock, through payroll deductions, with pre-tax dollars – not unlike a section 401(k) plan.”

The legislation would apply to stock options granted after the date of enactment.

– Nevin Adams editors@plansponsor.com

Administration July 6, 2002

Median Private Equity Returns Paltry: Report

June 7, 2002 (PLANSPONSOR.com) - The median annual return of private equity investments between 1995 and 2000 averaged just 3.9%, barely matching treasury rates, according to a new report.
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A performance analysis by CFC Capital, a middle-market investment banking firm, shows that while the number of seed capital, early stage venture and buyout funds grew from 588 in 1995 to 745 in 2000, and the average annual internal rates of return (IRR) over this period averaged 40.9%, only a handful of funds, with outstanding performances were responsible.

Size Matters

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In 1999, for example, the research shows that the average IRR weighted by amount of capital was a whopping 119%, or 95%, giving equal weighting to each of 698 funds surveyed. Yet the median return for this year was just 2.9%, CFC notes.

“These data tell us that a few of the very top private equity funds in several of the sector’s best years turned in stupendous performances, and most performed miserably by any standard,” said Arthur H. Rosenbloom, Managing Director of CFC Capital.

CFC Capital’s analysis was based on Venture Economics data for the years 1980 to 2000. The data defined the private equity fund universe as consisting of seed funds, early stage funds, balanced funds, later stage funds, small buyouts, all buyouts and all private equity funds. 

see also The Private Equity Game

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