ESOPs Gain New Attention as a Wealth Distribution Mechanism

Two organizations with significant pull in the business world are focusing their attention on the benefits that ESOPs and employee ownership can bring to disadvantaged communities.

The Aspen Institute Economic Opportunities Program and the Rockefeller Foundation have been working jointly to explore and promote the use of ESOPs and employee ownership in Qualified Opportunity Zones. These 761 zones include distressed communities in all 50 states, the District of Columbia, and five U.S. territories.

These zones were created by the Tax Cuts and Jobs Act of 2017 to encourage investment in the communities that need them most. But, as the Aspen Institute and Rockefeller Foundation note in a recently released document, not all investments benefit a community equally. The groups agree that investments that result in local employees owning a share in the business are important and worthy of support.

“For the Opportunity Zone incentives to fulfill their potential for impact, it is essential that strategies that both encourage the development of high-quality jobs and offer working people a stake in the success of their local economy are supported,” the document states. “Employee share ownership is one such strategy.”

“It is essential that strategies that both encourage the development of high-quality jobs and offer working people a stake in the success of their local economy are supported. Employee share ownership is one such strategy.”

The groups have held joint meetings and facilitated discussions among experts, in an effort to find ways to encourage Opportunity Zone investments in employee owned businesses. After one such meeting, in New York, the group determined that regulatory or legislative changes might be needed to provide greater clarity for those considering investing in an ESOP in an Opportunity Zone.

The groups continue to explore creative options that might promote greater ESOP investments in these zones. Some of the ideas and questions raised so far include:

  • Can Opportunity Funds be used to finance the acquisition and improvement of land owned by retiring business owners who sell to their employees?
  • Can ESOPs be an inclusive and responsible way for investors to exit from their investments in Qualified Opportunity Zones at the end of the 10-year investment period?
  • Can the Opportunity Zone regulations be clarified to include the structured equity used by ESOP owned S corporations under the definition of “qualified opportunity zone stock”?

The work these groups have invested in this effort underscores the value ESOPs can offer as a means of equitable wealth distribution, including—and perhaps especially—for those most in need. We salute the work of these groups. We will provide additional updates as they become available, and encourage our members to read the full report and to stay up to date with the efforts of the Aspen Institute and the Rockefeller Foundation.