The Employee Ownership Update
August 1, 2017
Bipartisan Bill to Support Awareness of ESOPsOn July 19, Senators Pat Roberts (R-KS) and Ben Cardin (D-MD) introduced the Promotion and Expansion of Private Employee Ownership Act (S. 1589). The 22 sponsors include 10 Republicans and 12 Democrats, and the bill has been referred to the Senate Finance Committee. The bill, which had been introduced in prior sessions, would extend the deferral of capital gains taxation, which currently only applies to sellers of C corporation shares, to qualified sellers of S corporation shares. It would also protect the SBA certification of companies that establish ESOPs and extend technical assistance to support sales to ESOPs.
The bill is the Senate's version of House Bill 2092, introduced by David Reichert (R-WA-08) and Ron Kind (D-WI-03) in April.
IRS Issues Revenue Procedure on Preapproved PlansOn June 30, 2017, the IRS released Revenue Procedure 2017-41, which lays out revised procedures for obtaining opinion letters for preapproved plans, including ESOPs. Currently, an ESOP is available only to plan sponsors in the form of an "individually designed plan" that is submitted to the IRS for an individual favorable determination letter. Under the new program, document providers (such as law firms and other practitioners) may submit an ESOP document to the IRS for an opinion letter that "pre-approves" the qualified status of the plan document. Document providers may submit an ESOP document to the IRS between October 2, 2017, and October 1, 2018. More about this new program will follow for members in the next NCEO newsletter.
Massachusetts Governor Vetoes Appropriation for State CenterOur last update noted that the Massachusetts legislature had approved a bill that would restore funding to the Massachusetts Office of Employee Involvement and Ownership (MassEIO). On July 17, Governor Charlie Baker (R) vetoed various parts of the budget, including the funding for the MassEIO.
DOL Reaches Settlement with New York ESOP CompanyOn July 21, the Department of Labor announced that it had agreed to a $5.5 million settlement in Acosta v. Ginsberg. The DOL alleged that the founder of the company received an inflated price when he sold 50% of his shares to the ESOP in 2009.
Emerging Democratic Party Strategy: A Role for Employee Ownership?When Sen. Charles Schumer announced the emergence of a new economic message for the Democratic Party, he did not mention employee ownership. In a Fortune blog post, Joseph Blasi and Doug Kruse point out the possibilities for the Democrats, concluding that
The Democratic Party has a tall order to retrain the American workforce and make sure that existing employees and the retrained employees of the middle class not only have a crack at a better deal through fair wages, but also have access to wage and income growth, including shares of profits and equity in the companies that they will help to make successful. The good news is that these are ideas that can easily attract Republican support.
Employee Owners Win "Made in Alaska" AwardOn July 24, Alaska Governor Bill Walker presented the Alaska Manufacturer of the Year award to ESOP-owned Alaska Mill & Feed. President Joel Klessens said, "Our 65 employees invest a lot of themselves in their work. I think of the guy who's worked for us 25 years and he's out there in minus-20 below when the wind is blowing... So for them to reap the benefits of that success is very fitting and that's what makes us so proud of today's announcement."
Is Your ESOP Transaction Above-Board?The online journal JD Supra ran a short article with some warning signs that an ESOP transaction may be abusive. The NCEO's article on red flags is another way to check to make sure your ESOP transaction will withstand scrutiny.
Author biography and other columns in this series