New Bill to Encourage ESOPs Introduced

House Ways and Means Committee members introduced legislation designed to spur more employee-ownership in private industry.

The Promotion and Expansion of Private Employee Ownership Act of 2014 (H.R. 4837) eliminates barriers that a business and its owners currently face in establishing a new S corporation employee stock ownership plan (ESOP) or expanding the employee-ownership stake in an S corporation. Congress created the S corporation ESOP structure to encourage and expand retirement savings, giving more workers in private companies the chance to own their companies through an ESOP qualified retirement savings program, the Employee-Owned S Corporations of America, said in a statement.

Among the provisions in the bill are measures that will:

  • Enable owners of S corporations to sell their stock to an ESOP;
  • Encourage the flow of bank capital to ESOP-owned S corporations;
  • Provide needed technical assistance for companies that may be interested in forming an S ESOP;
  • Ensure small businesses that become ESOPs retain their Small Business Administration (SBA) certification; and
  • Affirm the importance of preserving the S ESOP structure in the Internal Revenue Code.

According to the Employee-Owned S Corporations of America, studies have shown that S ESOP employees have retirement account balances three to five times higher than the average 401(k) or other defined contribution plans and they are economic drivers. The 2013 study, “Macroeconomic Impact of S ESOPs on the U.S. Economy,” also found total direct and indirect output from these companies is nearly 2% of gross domestic product.

Research from the National Center for Employee Ownership (NCEO) finds the average ESOP participant has 20% more defined contribution assets than the average participant in a non-ESOP defined contribution (DC) plan, and on average, ESOP companies contributed 75% more to their ESOPs than other companies contributed to their primary DC plan (see “ESOP Companies Contribute More to Employee Savings”).

Similar legislation was introduced in 2011 (see “Lawmakers Introduce Legislation to Promote ESOPs”) and 2013 (see “Bill Would Encourage More S Corporation ESOPs”).

Text of the Promotion and Expansion of Private Employee Ownership Act of 2014 is here.