NUA – A Great Tax Benefit/Employee Stock Option Appreciation Rights Securities (ESOARS)

Net Unrealized Appreciation - Great Tax Benefit for Retirees explains the benefits of Net Unrealized Appreciation and provides an example:

"Under the NUA strategy, employees take an in-kind distribution of company stock from their retirement plan (after leaving the company) and pay ordinary income taxes on the stock's basis or original cost when it was put in the plan. The difference between the basis and the market value—the net unrealized appreciation—is taxed at long-term capital gains rates when the stock is sold, regardless of the holding period. This can be a significantly lower taxable event than rolling the stock into an IRA where all of its value will eventually be taxed as ordinary income."

For more information on NUA, check out this post: Net Unrealized Appreciation

Employee Stock Option Appreciation Rights Securities (ESOARS)

While stock options are not the primary focus of this site, we occasionally mention them. Since we have referred to Employee Stock Option Appreciation Rights Securities (ESOARS) in the past, you may be interested in A Bid for Fair Value, which discusses ESOARS in more detail:

• "Zions Bancorporation developed Employee Stock Option Appreciation Rights Securities (ESOARS) as a market-based pricing technique for expensing stock options under FASB Statement no. 123(R).
  
• ESOARS auctions may be able to achieve a lower expense for Statement no.
  123(R) purposes than other option-pricing models such as Black-Scholes or the binomial method.
  
• ESOARS are SEC-registered traded securities and can require substantial upfront costs, including legal and accounting fees to prepare an offering prospectus, advertising to attract investors, screening of investors to ensure an appropriate level of expertise and setting up a record-keeping system for the ESOARS that is tied in with the record-keeping system for existing options.
  
• The SEC's analysis of ESOARS says the method is an acceptable market-based approach to valuing employee share-based payments under Statement no. 123(R), but also outlines several conditions that should be met for each auction to qualify as an appropriate market-pricing mechanism."