Washington, DC — U.S. Senator Ben Cardin (D-MD), a member of the Senate Finance Committee, has introduced a bill aimed at helping more Americans gain retirement savings and security through private employee ownership. The Promotion and Expansion of Private Employee Ownership Act (S. 742) eliminates barriers that a business and its owners currently face in establishing a new S corporation ESOP or expanding the employee-ownership stake in an S corporation. Studies have shown that employees of S corporations with employee stock ownership plans (S ESOPs) have retirement account balances three to five times higher than the average 401 (k) or other defined contribution plans.
“Far too many Americans are inadequately prepared for retirement. Our legislation is about helping workers save by giving businesses the tools they need to create jobs and promote adequate retirement savings. It will strengthen a structure that promotes employee-ownership and helps workers build secure retirements,” said Senator Cardin. “The bill also empowers businesses with the tools they need to access capital, retain workers, and hire new ones; essential to our continued economic recovery.
“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.”
Cosponsoring this legislation with Senator Cardin are Senators Pat Roberts (R-KS), Mary Landrieu (D-LA), John Thune (R-SD), Debbie Stabenow (D-MI), Roy Blunt (R-MO) and Amy Klobuchar (D-MN).
Also released today by the Employee-Owned S Corporations of America (ESCA), is a report by economist Alex Brill of the American Enterprise Institute, the Macroeconomic Impact of S ESOPs on the U.S. Economy. The report details that in 2010, S ESOPs contributed the following to our economy:
- 1.4 million jobs. S ESOPs directly employed 470,000 workers and supported an additional 940,000 jobs.
- $77 billion in labor income. S ESOPs paid $29 billion in labor income to their own employees, with $48 billion in additional income for supported jobs.
- $246 billion in output – nearly 2% GDP. Total output was equivalent to 1.7 percent of 2010 U.S. GDP. $93 billion (or 0.6 percent of GDP) came directly from S ESOPs, while output in supported industries totaled $153 billion (or 1.1 percent of GDP).
- $27 billion in tax revenue. Tax revenue initiated by S ESOPs amounted to $11 billion for state and local governments and $16 billion for the federal government.
PROMOTION AND EXPANSION OF PRIVATE EMPLOYEE OWNERSHIP ACT (S. 742)
SECTION BY SECTION:
Section 1 sets forth the short title of the bill: the “Promotion and Expansion of Private Employee Ownership Act of 2011.”
Section 2 sets forth the findings. It underscores the importance of fostering employee ownership of S corporations through ESOPs and Congress’s intent to preserve the S-ESOP structure in the Internal Revenue Code.
Section 3 of the bill would extend the gain deferral provisions of section 1042 to sales of employer stock to S-ESOPs.
· Under current law, section 1042 allows an individual owner of stock in a non-publicly traded C-corp that sponsors an ESOP to elect to defer the recognition of gain from the sale of such stock to the ESOP if the seller reinvests the sales proceeds into “qualified replacement property” (i.e. stock or other securities issued by a U.S. operating corporation). After the sale, the ESOP must own at least 30 percent of the employer corporation’s stock. The deferred gain from the sale of employer stock to an ESOP generally must be recognized upon a subsequent sale or exchange of the qualified replacement property.
· This section extends the tax treatment of a sale to a C-corp ESOP to an S-corp ESOP.
Section 4 of the bill would create an “S Corporation Employee Ownership Assistance Office” in the Department of Treasury to foster increased employee ownership of S-corps.
· The office would provide education and outreach to inform people about the possibilities and benefits of employee ownership of S-corps and provide technical assistance to companies that may be interested in forming an S-ESOP.
· The office is needed because small businesses often do not have the resources to hire legal advisors or other assistance in making the decision to become an ESOP or to help in the transition to an ESOP.
Section 5 would permit a Small Business Administration (“SBA”) certified small business to remain eligible for SBA programs after becoming majority-owned by an ESOP if employee demographics remain the same. Under current law a business that is majority-owned by an ESOP is prohibited from qualifying for SBA programs.