Many of the laws governing compensation, taxation and employee benefits were developed at a time when stock ownership plans affected few employees. As a result, such laws do not reflect the nature of the new global economy in which broad-based stock ownership programs are an important employee benefit, the study says.

American Benefits Council President James A. Klein says the organization recommends changes in tax code and benefits legislation to help foster growth and simplify administration. The changes include:

* Legislation to exempt employee stock-purchase plans and incentive stock options from employment and income tax withholding.

* Legislation to exempt income from the exercise of stock-option plans from the Alternative Minimum Tax.

* A moratorium on mandates requiring part-time and short-service employees to be covered under stock plans.

* Tax deductions for employers when employees choose to leave dividends paid on employer stock for reinvestment. This would encourage accumulation of retirement savings through employee stock ownership.

* Tax incentives for employee-sponsored equity plans.

* Review and restructuring of requirements dealing with offering equity ownership to U.S. employees working in other countries.

* Simplify tax rules involving lump-sum distributions and net unrealized appreciation.

Pensions Also at Risk

Few employees realize that their defined benefit pension plans suffer when the stock market plummets. Though many traditional pension plans were overfunded during the 10 years of economic expansion, the sagging markets of 2000 and 2001 are taking their toll.

Even the largest global conglomerates invested in a range of international markets were affected. Poor investment performance in the global markets reduced pension plan funding levels by 10 percent to 15 percent in 2000, according to a study conducted by Towers Perrin, a New York based employee benefits and human re sources consulting company.

Not only did plan investment income drop, but liabilities increased as actuaries revised assumptions to match more stringent accounting requirements.