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New Bill Helps Employee Stock Ownership Plans Grow

Employee stock ownership plans, or “ESOPs,” have been shown to be remarkably effective in helping private companies grow and expand jobs while enabling employee-owners to amass retirement savings. New legislation has been introduced in Congress to spur more of this type of employee-ownership in the private sector.

The “Promotion and Expansion of Private Employee Ownership Act of 2011,” introduced March 29 by a bipartisan group of six members of the House and Ways Committee, eliminates barriers that a business and its owners currently face in establishing a new S corporation (corporations that pass corporate income, losses, deductions and credit on to their shareholders for tax purposes) 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.  S corporations can have no more than 100 shareholders.

Studies show that S ESOP workers have retirement account balances three to five times higher than the average 401(k) or other defined contributions plan. Such ESOPS generate $14 billion in new savings each year for their workers beyond what they otherwise would have earned, which creates greater job stability and satisfaction.

Known as the Reichert/Kind bill, the legislation enables owners of S corporations to sell their stock to an ESOP, encourages the flow of bank capital to ESOP-owned S corporations, provides technical assistance in setting up an S ESOP and protects small ESOP-owned businesses from losing their SBA certification when employee ownership of the company expands.

“Empowering businesses with the tools they need to access capital , grow, retain workers, and hire new ones is essential to our economic recovery,"  Reichert said in a release.  "S ESOPs have demonstrated a striking resilience – hiring new workers even as other firms were shrinking.  Countless more businesses and workers could benefit from considering this proven business form.  I'm pleased that our bipartisan legislation will continue to support a structure that promotes employee-ownership and helps workers build secure retirements."

The name of Rep. Ron Kind (D-Wis.) is also attached to the bill, which was also introduced by Reps. Charles Boustany (R-La.), Earl Blumenauer (D-Ore.), Erik Paulsen (R-Minn.) and Bill Pascrell (D-N.J.