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House Bill Proposes Incentives for ESOPs

Posted by Marc S. Schechter | Aug 06, 2019 | 0 Comments

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A congressional bill introduced in the House of Representatives proposes tax incentives for Employee Stock Ownership Plans (ESOPs). The bill is supported by the ESOP Association as legislative support to encourage more businesses to provide a way for employees to share in and help grow the company. 

Bi-partisan sponsors, Representatives Ron Kind (D-WI-3) and Jason Smith (R-MO-8) introduced HR 2258, the Promotion and Expansion of Private Employee Ownership Act of 2019. The House bill is a companion to the Senate bill S.177, introduced by Sen. Pat Roberts (R-KS). The bill is intended to expand tax incentives and federal assistance for ESOPs that are sponsored by S Corporations.

Specifically, the bill would provide incentives and support through: 

  1. “Extending to all domestic corporations, including S corporations, provisions allowing deferral of tax on the gain from the sale of employer securities to an ESOP; and
  2. Allowing a tax deduction for 50% of the interest received by a bank on loans to S corporation-sponsored ESOPs for the purchase of employer securities.”

Support From ESOP Advocates

The ESOP Association is a non-profit organization made up of ESOP companies and providers that offer assistance and support in establishing and maintaining ESOPs. The ESOP Association supports the recent legislation and other legislation that supports employee ownership in businesses. 

According to James J. Bonham, President and CEO of The ESOP Association, "ESOPs are a powerful way to connect employee-owners to the business and to enable them to share in the profits they help generate. This bill will help ensure that more employees get the chance to share in the success of their business.”

Creating Ownership Interest for Employees

According to the text of the House bill, since the Taxpayer Relief Act of 1997 incentives to encourage the creation of ESOP-owned S Corps, “several thousand companies have become ESOP-owned S corporations, creating an ownership interest for several million Americans in companies in every State in the country, in industries ranging from heavy manufacturing to technology development to services.”

The ownership interest in an ESOP takes the form of retirement savings. While almost 40% of American workers have no formal retirement savings account, S Corp ESOP employee-owners participate in an ESOP qualified retirement savings account. ESOP workers average higher retirement savings compared to non-ESOP workers and have higher rates of job stability. 

ESOP Law Firm for San Diego Businesses

ESOPs for San Diego businesses will allow workers to take a greater ownership interest in their work. An ESOP is also a unique succession plan option for business owners who are looking to retire in the future. 

If you have any questions about employee ownership and ESOPs for your California company, Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Marc S. Schechter

Marc Schechter specializes in the areas of employee benefits, ERISA, and business matters.

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