Multi-bill Package Continues to Address Decades of Anti-ESOP Bias That Has Existed at Department of Labor, EBSA

The Senate Committee on Health, Education, Labor & Pensions (HELP) today unanimously passed a package of legislation consisting of several priorities of The ESOP Association. The two bills, the Employee Ownership Representation Act and the Retire Through Ownership Act, would mark significant changes and improvements to policy and ESOP advocacy within the Department of Labor. The ESOP Association worked closely with Senators and committee staff on both bills and strongly supports their passage by the full Senate.

“Today is a significant milestone for ESOPs and employee ownership in America,” said James Bonham, President and CEO of The ESOP Association. “With unanimous and bipartisan passage of both bills, the HELP Committee is sending a clear message to the Department of Labor that Congress has had enough of the anti-ESOP bias at the DOL and is taking concrete steps to support ESOPs.

“The Retire Through Ownership Act will finally provide additional certainty for ESOP trustees that rely upon an independent expert’s appraisal that follows guidelines contained in IRS 59-60, which is both longstanding and accepted. As Senator Tim Kaine (D-VA) said in remarks on his legislation today, if those guidelines are followed, there would be a ‘safe harbor, and there cannot be a subsequent action’ against a business owner selling to an ESOP. We are extremely grateful to Senators Roger Marshall (R-KS) and Kaine for their leadership on this vital legislation that would help undo decades of uncertainty and help spur ESOP creation.

“The Employee Ownership Representation Act would finally ensure ESOPs have a full, independent and unbiased voice at the Department of Labor that has been sorely lacking for decades, and we are grateful to Chairman Cassidy for sponsoring this legislation. We also thank Senators Hassan and Kaine for their authorship of the Advocate for Employee Ownership Act, and the changes made in the bill to include all ESOPs, not just S-Corporations. There are many reasons an ESOP would choose to be a C-Corporation vs. an S-Corporation, and the improved bill ensures all ESOP business types receive equal treatment.

“On behalf of our membership, we would like to thank Chairman Cassidy and Ranking Member Bernie Sanders (I-VT) for their bipartisan leadership, and we commend the HELP Committee for their unanimous package of this vital ESOP legislation”.

Retire Through Ownership Act (S. 2403)

The Retire Through Ownership Act, sponsored by Senators Roger Marshall (R-KS) and Tim Kaine (D-VA) provides essential clarity on the issue of adequate consideration and will strengthen the foundation of employee ownership and ESOPs in America. The Retire Through Ownership Act would allow an ESOP plan fiduciary to rely in good faith on an independent professional expert business appraiser who utilizes the longstanding well-accepted valuation practices as described in IRS Revenue Ruling 59-60.

Without clear legislative or regulatory guidance, ESOP fiduciaries have been required to operate under a cloud of uncertainty and potential liability, even when they are acting prudently and in good faith by hiring qualified, independent business valuation experts. As this guidance is currently non-existent, this bill provides much needed clarity.

IRS ruling 59-60 is well understood and broadly accepted and recognizes the myriad factors a professional business appraiser should consider in forming a valuation for closely held businesses. By properly aligning ERISA with long-existing valuation guidance, this legislation prevents the development of multiple competing, or even conflicting, processes or procedures within federal policy, thereby limiting the risk of conflicting interpretations by courts or regulators. For more than 60 years, both government officials and private sector business appraisers have successfully relied on the guidance of this IRS ruling.

Employee Ownership Representation Act (S. 1728)

The Employee Ownership Representation Act, sponsored by HELP Committee Chairman Bill Cassidy (R-LA), would add two representatives of employee ownership organizations to the ERISA Advisory Council at the Department of Labor. This long-overdue addition will ensure that the voices of America’s employee-owners are heard in the regulatory process governing retirement security. With more than 6,500 ESOPs across all 50 states affecting over 14 million people and representing nearly $2 trillion in wealth, the absence of employee ownership voices on the Council has left a glaring gap in both perspective and regulatory action at the Department.

In addition, S. 1728 also incorporates the Advocate for Employee Ownership Act (S. 2474), sponsored by Senators Maggie Hassan (D-NH) and Steve Daines (R-MT). The bill authorizes the Secretary of Labor to appoint an Advocate for Employee Ownership within the existing Employee Ownership Initiative at the U.S. Department of Labor. The ESOP Association was the primary supporter of the bipartisan creation of the Employee Ownership Initiative at the Department, and this expansion will help further the initial goals of that Initiative.

Importantly, S. 2474 was greatly improved in scope between its introduction and final committee passage. The bill now includes all ESOPs regardless of their business structure as an S-Corporation or C-Corporation. This change is vitally important, as 2022 Department of Labor data shows nearly 40 percent of ESOPs nationwide (2,438 of 6,257 total), are C-Corporations. The ESOP Association appreciates the bill’s sponsors working to correct this language in S. 2474. Representation for ESOPs matters at the Department of Labor and has long been a priority of The ESOP Association.

About The ESOP Association

The ESOP Association is the largest organization in the world supporting employee-owned companies, the more than 10 million U.S. employees who participate in an ESOP, and the professionals who provide services to them. Headquartered at the International Employee Ownership Center in Washington, DC and operating as a 501(c)6 organization with the affiliated Employee Ownership Foundation, The ESOP Association conducts and funds academic research, provides more than 160 annual conferences and events attended by nearly 15,000 individuals, and advocates on behalf of employee owners and their businesses to federal and state lawmakers.

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With unanimous and bipartisan passage of both bills, the HELP Committee is sending a clear message to the Department of Labor that Congress has had enough of the anti-ESOP bias at the DOL and is taking concrete steps to support ESOPs.