ESI Equity News and Publications


S.177/H.R. 2258: The Promotion and Expansion of Private Employee Ownership Act

These identical pieces of legislation have been introduced in both the U.S. House (HR) and Senate (S) to promote employee ownership and make it easier to operate an ESOP company. The bills provide enhanced opportunities for ESOP financing and technical assistance for S Corporations interested in forming an ESOP, as well as allow small ESOP businesses to retain their SBA preference status when competing for government contracts. Both bills enjoy balanced, bi-partisan support with 35 Senate co-sponsors and 47 House co-sponsors at last count. Click here to view a fact sheet by The ESOP Association.

Department of Labor Regulatory Guidance and Clarity for ESOPs

Employee Stock Ownership Plans have two federal regulators – the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). The DOL primarily serves as the watchdog looking out for the interests of employee owners in relation to the decisions made on their behalf by their ESOP Trustee(s). This oversight authority was granted under the Employee Retirement Income Security Act of 1974 (ERISA). While over 45 years has gone by since ERISA became law, the DOL has not finished and issued the body of regulations and guidance that companies should follow to ensure they are following the law. While the DOL proposed regulations in 1988, final regulations were never issued.

Since then, ESOP companies and professional advisors have done their best to navigate the regulatory nature of ESOPs. For example, ESOPs must perform an annual professional valuation and inform their employee owners of the value of the company as if it were offered for sale in the market. These valuations are complex, and while there are standard rules and practices for valuing companies, there is no clear guidance or rule on valuations for ESOPs before or after they are formed. This is why it is critical to use professional advisors who have ESOP experience.

Advocacy groups such as the ESOP Association continue to seek regulatory clarity from the DOL on a range of essential topic so that ESOPs companies can make solid business decisions without regulatory uncertainty and ESOPs become more transparent and understandable. Click here to view a fact sheet by The ESOP Association.

To this end, two individuals testified before the House Committee on Small Business in February 2020:

Daniel Goldstein, President and CEO of Folience (ESOP holding company, Iowa) testified on behalf of The ESOP Association, while Mr. Mark Gillming, Senior Vice President of Messer Construction Co. (regional ESOP company based in Ohio), testified on behalf of ESCA during its hearing: Challenges and Benefits of Employee-owned Small Businesses.

House Small Business Committee members expressed their support for employee ownership and the ESOP model. Chairwoman Nydia Velazquez (D-NY) is impressed by employee-owners’ “investment in their company’s success and in their communities,” and she pointed to the higher wages, more robust worker benefits, better job security (especially during periods of economic distress), and increased community investment in and by ESOP companies.

Goldstein told the committee that ESOPs can help keep businesses open that otherwise might be forced to close as 2.5 million business owners retire in the coming decade. Mr. Gillming made it clear that Congress needs to protect the S ESOP model, as the 1996 statute that created S corporation ESOPs allows employee owners to build toward retirement and the future.

The testimony and comments made a strong impression: As Chairwoman Velazquez closed the meeting, she said: “Despite our work in the 115th Congress to address some of the obstacles to employee ownership, it is clear we still have more work to do and progress to achieve. And I heard you loud and clear on the Department of Labor—we’ll be dealing with that issue.”

ESI Equity follows all current and pending litigation surrounding ESOPs; we remain active in industry forums and network with many other professionals on ESOP related topics. We continue to support The ESOP Association, including being a member of the national Valuation Committee along with Regional and Local Chapter Committees that work to educate and inform the community as a whole on various topics. We are also members of The National Center for Employee Ownership and ESCA, all of which are advocates for the successful continuance of ESOPs and employee ownership.


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