Act to Promote Private Employee Ownership Introduced in Both Houses
The Promotion and Expansion of Private Employee Ownership Act (PDF) has been introduced in the House and the Senate. The bill is a revision of a proposal submitted in each chamber to encourage the growth of S corporation ESOPs. Both bills have bipartisan support. The Senate bill’s lead sponsors are Ben Cardin (D-MD) and Steve Daines (R-MT); in the House, the lead sponsors are Mike Kelly (R-PA) and Earl Blumenauer (D-OR). There are 20 Senate cosponsors and 6 House cosponsors so far, including some of the most liberal and conservative members.
The bill would:
- Move up the effective date of the 10% deferral of capital gains taxation under Internal Revenue Code Section 1042 from the sale of shares to an S corporation ESOP (as added by the SECURE 2.0 Act of 2022) from 2027 to 2023 and provide that the deferral would be for 100% of the gain, as is currently the case with C corporations.
- Create an S Corporation Employee Ownership Assistance Office in the Department of the Treasury to provide education and outreach on S corporation ESOPs.
- Grandfather any ESOP company that had qualified for set-aside programs through the federal government to be able to continue to qualify after an ESOP gains a controlling interest.
- Direct the Secretary of Labor to appoint an Advocate for Employee Ownership within the Employee Ownership Initiative established under the WORK Act provisions of the SECURE 2.0 Act of 2022. The Advocate would help coordinate federal programs that could support ESOPs and “work with the DOL to provide assistance for purposes of resolving a dispute with the Department of Labor” to an ESOP company, participant, or fiduciary. An annual report would be required.
Stephanie Silverman of the Employee-Owned S Corporations of America, or ESCA, welcomed the legislation, saying "expanding employee ownership opportunities is one way that Congress can help more Americans save for retirement and better prepare for a potential economic downturn."