WASHINGTON, D.C. – New legislation to spur employee ownership of private companies was introduced today by Senate Finance Committee Members Ben Cardin (D-MD), Pat Roberts (R-KS) and Olympia Snowe (R-ME), ranking member of the Small Business Committee.
In light of the fact that S corporation employee stock ownership plans, or “S ESOPs” are high performing businesses that create jobs, economic activity and retirement security, the bipartisan Promotion and Expansion of Private Employee Ownership Act of 2011 (S. 1512) would allow more S corporation business owners to transfer ownership to their employees and help more private companies access the resources they need to become employee owned.
“S ESOPs have proven resilient even in tough times—hiring new workers as other firms were shrinking—while also providing an effective means of retirement savings for their workers,” said Senator Ben Cardin. “We need to preserve and expand this structure to enable more businesses to grow and to allow their employees to accrue these valuable benefits. Americans deserve the opportunity to build secure retirement savings; far too many hard-working individuals are left with serious questions about their future economic security.”
The bill eliminates 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. 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. A similar bill, currently endorsed by 18 Republicans and 18 Democrats, was introduced earlier this year in the House of Representatives as H.R. 1244.
Added Senator Roberts, “This legislation supports a simple but powerful premise: when employees own the company, they operate with a vested interest in its success, and that in turn generates tremendous returns for the company, the community, and the economy. Furthermore, with fewer than half of Americans claiming any form of employer-sponsored retirement savings plan, private, employee-owned firms play an important role in ensuring retirement security for workers across America.”
The S corporation ESOP structure accomplishes exactly what Congress intended it to do by creating retirement security for millions of American workers in all 50 states, many of whom otherwise would not have the ability to save for retirement. A study from University of Pennsylvania shows that S ESOP employees have retirement account balances three to five times higher than the average 401 (k) or other defined contribution plans and that S ESOPs generate $14 billion in new savings each year for their workers beyond what they otherwise would have earned, offering greater job stability and job satisfaction. According to a Georgetown University report, S ESOPs have been better able to weather economic downturns, preserve jobs and, in the case of the recent recession, have grown wages in comparison to their non-S corporation ESOP counterparts.
Among the provisions in the Cardin/ Roberts bill are measures that will:
- Encourage owners of S corporations to sell their stock to an ESOP;
- Provide additional technical assistance for companies that may be interested in forming an S corporation ESOP; and
- Acknowledge the importance of preserving the S corporation ESOP structure in the Internal Revenue Code.
Business owners have applauded the legislation as a strong show of support for employee-ownership.
“When times are tough, employee-owners work smarter and harder because of their commitment and investment in the business, and that makes us stronger,” said Greg Klein, vice president and CFO of Inland Truck Parts, an S ESOP company with 500 employees in nine states, headquartered in Overland Park, KS. “We applaud the bipartisan leadership of these Senators to encourage long-term retirement savings and jobs for hardworking Americans.”
Klein currently serves as chairman of the board of directors of the Employee-Owned S Corporations of America.
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The Employee-Owned S Corporations of America (“ESCA”) is the Washington, DC voice for employee-owned S corporations.