House Committee Passes Bill to Fund State EO Outreach Programs
By a 29-21 party-line vote, the House Education and Labor Committee has passed H.R. 7310, the Protecting America’s Retirement Security Act. The bill now will go to the full House. There is no current Senate companion bill. The bill contains a handful of provisions, most notably requirements for fee disclosure in retirement plans, the creation of a federal personal finance education portal, increased requirements for spousal consent requirements in defined contribution plans, and making automatic deferrals to a 401(k) plan continue by default unless an affirmative action to end them is made.
Previously, there was a proposal for the bill to include a provision directing the DOL to develop clear standards on ESOP valuation practices. The proposal had bipartisan support but was not included.
More importantly for those interested in employee ownership, the bill also directs the Department of Labor to establish an Employee Ownership and Participation Initiative to promote employee ownership and employee participation in business decision-making. The program would be funded at $10 million per year for five years. The funds can go to existing programs or create new ones.
Program funds would be used for:
“(A) providing education and outreach to inform employees and employers about the possibilities and benefits of employee ownership, business ownership succession planning, and employee participation in business decision making, including providing information about financial education, employee teams, open-book management, and other tools that enable employees to share ideas and information about how their businesses can succeed;
"(B) providing technical assistance to assist employee efforts to become business owners, to enable employers and employees to explore and assess the feasibility of transferring full or partial ownership to employees, and to encourage employees and employers to start new employee-owned businesses; and
"(C) training employees and employers with respect to methods of employee participation in open-book management, work teams, committees, and other approaches for seeking greater employee input.”
The bill directs the program to “act as a clearinghouse on techniques employed by new programs and existing programs within the States, and disseminating information relating to those techniques to the programs; and …facilitate the formation of new programs, in ways that include holding or funding an annual conference of representatives from States with existing programs, representatives from States developing new programs, and representatives from States without existing programs.”
Funds can be used for educating business owners about using employee ownership for business transition, providing information on starting employee-owned companies, training employees and employers on workplace participation programs, and providing technical assistance to assess the feasibility of transactions. Funds also can be used to help pay for feasibility studies; provide materials for outreach and training; create a data bank on where to find legal, financial, and technical advice in connection with business ownership; and create networks of employee-owned companies.
States can “sponsor and submit an application . . . on behalf of any local entity consisting of a unit of State or local government, State-supported institution of higher education, or nonprofit organization,” as well as submit an application on their own behalf. If a state fails to support or establish such a program in a given fiscal year, then in subsequent fiscal years, such local governmental, educational, or nonprofit entities can apply for grants on their own initiative.
Total funds for the program will start at $4 million in fiscal year 2023 and increase to $16 million by fiscal year 2028.
The language of the bill draws substantially on a language developed in 1987 for legislation introduced by Senator James Sasser. The idea was revived in a 2015 Center for American Progress report, which the NCEO was also very involved in developing, on how employee-owners could be encouraged and has been included in the WORK Act, sponsored by Senator Sanders in the Senate and Representative Courtney in the House.
The bill now goes to the House floor. It is one of a number of retirement bills being considered, including the SECURE 2.0 Act, which has already passed the House. Republicans objected to the Protecting America’s Retirement Security Act because they found the bill's requirements for obtaining spousal consent to be onerous, fearing they could delay or even prevent distributions in cases such as where a spouse is hard to locate or an abused spouse has to get consent from an abuser. As the bill moves forward, parts may be separated and ultimately added to an omnibus retirement bill, or the bill may be changed. The bill is highly unlikely to pass on its own, and this provision would need to be added to a Senate version of one of the main retirement bills, likely the SECURE 2.0 Act, to have a chance to become law. While there is bipartisan support for many of the ideas included in the various retirement reform bills now being considered, the current political environment makes predictions unreliable.