Senators Introduce ESOP to Expand Employee Ownership
Senators introduced a bipartisan bill that would encourage employee stock ownership as a means of retirement savings for workers. U.S. Senators Pat Roberts (R-Kan.) and Ben Cardin (D-Md.) introduced Senate Bill 177 which would, in part, expand the creation of S Corporation ESOPs. Introduced on January 18, 2019, the new bill has the support of 24 Democrat and Republican sponsors.
The Promotion and Expansion of Private Employee Ownership Act (S.177) is identical to the prior Senate bill 1589, introduced in 2017, which would amend the Internal Revenue Code to extend tax deferral provisions from the sale of employer securities to an S corporation-sponsored ESOP.
According to the Senators who introduced the bill, it would "eliminate barriers that businesses and their owners currently face in establishing a new S corporation ESOP or expanding the employee-ownership stake in an S Corporation.
An ESOP is an employee-owner plan that functions as a qualified retirement plan. The plan invests in company securities and participating employees are given an ownership interest in the company. When an employee retires, their interest is bought back by the company to provide retirement benefits.
According to Senator Roberts, "the legislation will encourage employees to save for retirement, and, participants in ESOPs have been found to be more productive employees because they have an interest in company growth. Our bill promotes this mutually beneficial relationship for both employees and businesses."
"Americans deserve the opportunity to build secure retirement savings," said Senator Cardin. "S-ESOP companies have proven resilient even in tough times while providing an effective means of retirement savings for their workers. We need to preserve and expand this structure to enable more businesses to grow and to allow employees to accrue these valuable benefits."
There are a number of benefits to ESOPs for many types of companies, including tax benefits for the shareholders and employees. In addition, studies have suggested ESOPs have increased productivity, higher rates of worker satisfaction, and lower employee turnover. Employees in ESOPs also tend to have higher retirement savings. There are currently more than 6,500 plans with an estimated 14 million participants.
The Senate bill also claims to provide protection for small businesses by ensuring they are able to qualify for Small Business Administration (SBA) loans, contracting assistance, or business development programs after they transition to ownership to an ESOP. It also allows businesses that qualify for minority-owned, woman-owned, or veteran-owned programs to maintain their status after the ESOP acquires the shares.
The ESOP Association which advocates for employee ownership plans supports the bill as encouraging employee stock ownership.