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Pro-ESOP Legislation Updates

Posted by Marc S. Schechter | Jul 19, 2019 | 0 Comments

Federal legislation and lawmakers at the state level are pushing forward legislation to foster the development of more Employee Stock Ownership Plans (ESOPs) and make it simpler for companies to transition to ESOP ownership. California lawmakers should support legislation in support of ESOPs to benefit workers and business owners alike. 

Research indicates that some of the benefits of employee-ownership include greater retirement savings for workers, higher productivity for the company, lower turnover, provides succession options for retiring business owners, and industry innovation

The following highlights some of the current bills and proposals to encourage ESOP growth, at the state and federal levels.

U.S. Senate Bill to Encourage S-ESOPs

U.S. Senators Ben Cardin (D-Md.) and Pat Roberts (R-Kan.) have introduced the bipartisan Promotion and Expansion of Private Employee Ownership Act to, “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.”

According to Senator Cardin, the bill would help workers build secure retirement savings. Senator Roberts highlighted that ESOP participants are more productive employees, which helps the business grow, to benefit both the workers and the company. 

The act would also provide assistance for small businesses that may otherwise not consider employee-ownership. Small businesses would continue to qualify for SBA loans, contracting assistance, and/or business development programs if they transition to an ESOP. This would help a number of smaller companies that may have previously considered themselves too small to become an ESOP

Senate Legislative Package to Expand ESOPs Nationally

A group of Democratic senators introduced a 2-part package of legislation aimed at helping workers form employee-owned businesses. The legislation was introduced by Senators Bernie Sanders (I-Vt), Kirsten Gillibrand (D-N.Y.), Patrick Leahy (D-Vt.), Maggie Hassan (D-N.H.), and Jeanne Shaheen (D-N.H.). 

The first part of the legislation is Senate Bill 1081, known as The Work Act. The Work Act is modeled on the success of the Vermont Employee Ownership Center, and would provide funding to states to help establish and expand employee ownership centers. These centers would provide training and technical support for programs promoting employee ownership. 

 The second bill would create a U.S. Employee Ownership Bank, which could provide low-interest loans and financial assistance to help encourage the purchase of businesses through an employee stock ownership plan or worker cooperative. A House companion bill was introduced by Rep. Peter DeFazio (D-Ore.).

State Employee Ownership Revamp

According to a July 9 press release, the Massachusetts Office of Business Development has approved state funding for the Massachusetts Center for Employee Ownership (MassCEO). The original Massachusetts Office of Employee Involvement and Ownership office was established in the late 1980s. Consultants were hired to support employee-ownership by meeting with companies where the owners may have been looking to retire in the near future. 

According to an estimate by one of the consultants, ICA Group, nearly 28,000 Massachusetts companies may be put on the market for sale in the next 5 years. ESOPs are being highlighted for the unique benefits they provide retiring business owners who want their businesses to continue and succeed after selling the company. 

In 2014, one of the founders of Massachusetts craft brewer Harpoon Brewery was looking to sell the business. However, the other co-founder worked with the employees to buy out the selling partner through an ESOP. 

According to Harpoon Brewery's president, the administrative challenges of transitioning to employee ownership are far outweighed by the benefits, including increased performance and morale. Harpoon, like many other craft brewers, including San Diego's own Modern Times, have found growth and success through transitioning to employee-ownership. 

Employee Ownership for Your San Diego Business

If you have any questions about the benefits of an ESOP and succession planning through employee ownership, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice 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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