House Ways and Means Committee members Dave Reichert (R-WA), Ron Kind (D-WI), Charles Boustany (R-LA), Earl Blumenauer (D-OR), Erik Paulsen (R-MN), and Bill Pascrell (D-NJ) introduced legislation designed to spur more employee-ownership in private industry.

On the heels of data showing that employee stock ownership plans, or "ESOPs," have been remarkably effective in helping private companies grow and expand jobs and enabling employee-owners to amass retirement savings, the bipartisan group of Ways & Means Committee members put forth a measure to allow more S corporation business owners to transfer ownership to their employees and help more companies get information about how to become an ESOP-owned S corporation.

The Promotion and Expansion of Private Employee Ownership Act of 2011 (H.R. 1244) 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. 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.

According to Employee-Owned S Corporations of America, an organization based in Washington D.C., the S corporation ESOP structure has worked well, offering a measure of retirement security for millions of U.S. workers, many of whom otherwise would not have the ability to save for retirement. The group says 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 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.

The group also offers reserach from a Georgetown University report, indicating 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.

"Empowering businesses with the tools they need to access capital, grow, retain workers, and hire new ones is essential to our economic recovery," Rep. Reichert said. "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."

Among the provisions in the Reichert/Kind bill, which is supported by ESCA and the ESOP Association, 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 technical assistance for companies interested in forming an S ESOP;
  • Protect small ESOP-owned businesses from losing their SBA certification when employee ownership of the company expands; and
  • Affirm the economic value of the S ESOP .

Added Congressman Kind, "Giving workers the opportunity to invest in their company not only provides retirement security for workers themselves, but generates tremendous returns for the company, the community, and the economy. I'm proud to be part of a measure that will help businesses in Wisconsin and across the country benefit from this structure."

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 9 states, headquartered in Overland Park, KS. "We applaud the bipartisan leadership of these Members 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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