Legislation to encourage retirement savings by fostering the growth of S corporations that are owned by Employee Stock Ownership Plans (S-ESOP) has been introduced in both the House and Senate.
Sen. Ben Cardin (D-Md.), Chair of the Senate Small Business Committee and a senior member of the Senate Finance Committee, along with Sen. Steve Daines (R-Mont.), also a member of the Senate Finance Committee, on July 26 introduced an expanded version of the Promotion and Expansion of Private Employee Ownership Act.
Reps. Earl Blumenauer (D-Ore.) and Mike Kelly (R-Pa.), both members of the House Ways and Means Committee, introduced the legislation in the House of Representatives.
According to the sponsors, the bicameral bill (H.R. 5011 and S. 2515) would eliminate barriers that businesses and their owners currently face in establishing a new S-ESOP or expanding the employee-ownership stake in an S corporation. With the creation of a new Employee Ownership Initiative at the Department of Labor (DOL) with a mandate to assist employee-owned companies and review ESOP-related regulations before they are finalized, the legislation would solidify advocacy for S-ESOPs from development through all stages of growth.[1]
The Promotion and Expansion of Private Employee Ownership Act:
- Incentivizes owners of S corporations to sell their stock to an ESOP by providing deferral treatment for contributions of S corporation stock to an ESOP so long as certain reinvestment requirements are met;
- Helps ensure that small businesses that become ESOPs retain their SBA certification;
- Requires the Treasury Secretary to establish the S Corporation Employee Ownership Assistance Office to provide, among other things, technical assistance to assist S corporations in sponsoring ESOPs; and
- Creates the position of an “Employee Ownership Advocate” within the DOL’s Employee Ownership Initiative established as part of the SECURE 2.0 Act to support the formation and success of employee ownership.
“Employee ownership provides small business owners and workers incredible opportunities to build generational wealth and create resiliency for their businesses. We need to preserve and expand this structure to enable more businesses to grow and to allow employees to accrue valuable benefits,” Sen. Cardin said in a statement.
“By expanding Employee Stock Ownership Plans (ESOPs), we can put more hardworking Americans on the path to financial prosperity and a secure retirement,” added Rep. Kelly. “This bipartisan, bicameral plan is a win-win for workers and businesses: it allows small- and medium-sized businesses to include employee ownership in the compensation package, and ESOPs often retain more employees as a result.”
The lawmakers note that industry estimates place the number of ESOPs at more than 6,500 serving almost 14 million participants.
The House bill includes six additional cosponsors, while the Senate bill includes 20 additional cosponsors.
[1] The Department of Labor (DOL) announced a new initiative to help “create and promote business ownership by America’s workers.” The new Employee Ownership Initiative will fall under the Employee Benefits Security Administration (EBSA) as part of the Worker Ownership, Readiness, and Knowledge (WORK) Act in SECURE 2.0.
