Moving to the Offense. Touchdown for ESOPs on the Horizon?

Please note, the following article originally ran as the Washington Report column in the August 2015 issue of the ESOP Report, the newsletter of The ESOP Association.

In the first decade or so of the 21st Century, after the perfection of the S ESOP law — which was being abused by one and two person 100% S ESOPs — at the turn of the Century, the general mantra of the Association’s government relation’s message has been: “The best defense is a good offense.” In non-sports terms, the thinking is that when a cause has many members of Congress especially, on key Congressional Committees expressing support for specific laws by openly co-sponsoring proposals to expand those laws, cynics about the specific laws are not likely to “win” their efforts to cut back those laws.

Whether we like it or not, there are still men and women in key policy positions among Congressional offices, and among Executive Branch agencies, that see ESOPs as a waste of tax payer money, as bad retirement savings plans due to lack of asset diversification, and as not real ownership. If these people had a chance, which they would if fewer members of Congress openly supported ESOPs, they would maneuver to severely diminish, or to even eliminate laws to encourage creation and operation of ESOP companies.

Since 1990, they have had no time when a movement to cutback or eliminate pro-ESOP laws appeared; why, because on the advice of former super ESOP champion former Congressman Beryl Anthony, the ESOP community has put forth modest, but meaningful pro-ESOP proposals to expand ESOPs. This defense is the best offense strategy led to the passage of the pro-ESOP S ESOP law in 1996, perfected in 1997, and protected in 2001 from attack.

In this 1990 to 2000 time frame, over 100 members of Congress stood up and publicly proclaimed, “I am for ESOPs!” (More comments about this later in this report.)

Now we have, just after a few months post introduction of S. 1212, and H.R. 2096, 23 Senators and 33 members of the House saying, expand ESOP law. These bills, formally titled “Promotion and Expansion of Private Employee Ownership Act of 2015” have a very positive statement of reasons for encouraging ESOPs as an introduction and three similar sections, with the House bill, H.R. 2096, having an additional fourth provision. The section that has garnered the most attention is to permit sellers of S stock to an ESOP to take advantage of IRC 1042 for deferral of gain of the sellers proceeds. (If law, this provision would trigger a substantial increase in the number of S corporations that hold 30% of the company’s stock, but not 100%.). See http://www.esopassociation.org/advocate/advocacy-kit to read all provisions.

Last Congress, support for the House version of H.R. 2096 was a factor that recommendations to eliminate special tax rules in the tax reform proposal developed by former Ways and Means Chair Dave Camp (R-MI) kept all positive rules for ESOPs untouched.

Now, this Congress, in this year, the Senate Finance Committee created task forces to study specific areas of the income tax laws, and the task force reviewing ERISA laws did not just propose that the Senate keep current ESOP tax laws, but encouraged the enactment of S. 1212. In other words, the task force was saying, “Let’s not stand pat for ESOPs; let’s have more ESOPs.”

Then on July 29, the Senate Small Business Committee released a proposal to change tax laws impacting small business that included S. 1212, as Title IV of its proposal.

Bottom line, if the ESOP community remains active, focused, and persistent, in getting more members of Congress, House and Senate, to openly support S. 1212 and H.R. 2096, it is doable, probably not this year, a little more likely next year, but really a possibility after 2016, to once again expand ESOPs, which are good for America, good for the communities where ESOP companies are located, and good for companies with ESOPs, and good for employees.

Number one, have your member of Congress see first-hand your ESOP company to learn what being “ESOP” means; and then politely ask, join your colleagues, Democrats and Republicans, liberal and conservative, and make our nation become more capitalistic, with more ownership by more employees. Sounds like big talk? Yes, and doable.

ESOP Company News Part 6: ComSonics Meets with Congressman Goodlatte

CEMSI, ComSonics Electronic Manufacturing Services Incorporated, located in Harrisonburg, Virginia recently hosted Congressman Bob Goodlatte (R) of Virginia’s 6th District for a tour of the ComSonics manufacturing facility. ComSonics reported that Congressman Goodlatte has always been a strong supporter of employee ownership and he is always willing to take time from his busy schedule to visit with our employee‐owners when he is available.

During his visit, there was time to answer questions and the Congressman shared his views about employee ownership and his ongoing belief that it works. ComSonics employee owners also took the time to discuss H.R. 2096 and asked for his support on the Promotion and Expansion of Private Employee Ownership Act.

ComSonics also provided a letter asking for his backing upon his departure. Within a few weeks the company received a letter from the Congressman noting that he was pleased to inform ComSonics that he had become a cosponsor of the legislation.

ComSonics Goodlatte 1ConSonics Goodlatte ComSonics Goodlatte 3 ComSonics Goodlatte 2

CSI Goodlatte Letter5-15_Page_1CSI Goodlatte Letter5-15_Page_2

 

ESOP Company News Part 5: Restek Meets with Congressman Glenn Thompson

Restek Meets with Congressman Thompson

In July, the employee owners of Restek Corporation, located in Bellafonte, Pennsylvania, met with Congressman Glenn Thompson (PA-5) to review H.R. 2096. According to Restek employee owner, Mike Shuey, the Congressman expressed support for the bill. And we are happy to report that Congressman Thompson became a co-sponsor of H.R. 2096 on July 28.

Restek Thompson meeting

July 2015 Link Round Up

It’s that time again…see what you might have missed this month.

 

Booth Sales Open for 2015 Las Vegas Conference & Trade Show

 

ESOP Association President Comments on the Passing of Carolyn B. Long

 

Raise the Bar: More Pro-ESOP Bill Sponsors Needed

 

ESOP Chapter Membership

 

2015 Summer Advocacy Kits Available

 

New Center for American Progress Report Touts Capitalism for Everyone

 

Discussions of Capitalism

ESOP Company News for July

July 2015 Legislative Update

The July 2015 ESOP Report was published

Publications Highlight: Administration Handbook

Mid-Atlantic Chapter Round Table Re-Cap

2015 Las Vegas Conference and Trade Show Preliminary Agenda released

RELEASE: Expansion of S ESOPs Recommended by Senate Finance Committee’s Tax Reform Working Group on Savings & Investment

Welcome New ESOP Association Professional Members

Northwest Chapter News

Information on the Las Vegas Conference and Trade Show

RELEASE: ESOP Association President Comments on the Passing of Carolyn B. Long

The ESOP Association sent out the following release today.

For Immediate Release: July 28, 2015

ESOP Association President Comments on the Passing of Carolyn B. Long

Wife of former Senator Russell B. Long of Louisiana

July 28, 2015 (Washington, DC) – ESOP Association President, J. Michael Keeling, issued the following statement today upon learning of the passing of Carolyn B. Long, wife of former Senator Russell B. Long of Louisiana:

“On behalf of the entire employee ownership community, I express gratitude and admiration for the life and work of Carolyn Long on behalf of Americans having more ownership of productive assets through the Employee Stock Ownership model. Without a doubt, the masterful legislative skills of her husband, Senator Russell B. Long, laid down the foundation for our nation’s growing interest in having more Americans be among the owners of the companies where they work; but, Carolyn was a stalwart in advising the Senator, and in urging the Senator to continue his work for all citizens working in the private sector. She bolstered his fortitude to continue his work for employee ownership when so many were skeptical of the power of average pay Americans to improve our economy, and their lives.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

 

More Information:

Amy Gwiazdowski

202/293-2971

amy AT esopassociation.org

@ESOPAssociation

Raise the Bar: More Pro-ESOP Bill Sponsors Needed

Please note, the following article originally ran as the Washington Report column in the July 2015 issue of the ESOP Report, the newsletter of The ESOP Association.

No question it was pleasing to have introduced in the House, H.R. 2096, (Promotion and Expansion of Private Employee Ownership Act of 2015), and in the Senate S. 1212 (same title) in late April and early May, with clear cut Republican and Democrat members of the House and Senate as co-sponsors. It is pleasing to see that as of July 7, the bi-partisan support grew, for as of that date, the H.R. 2096 list of sponsors had grown from the original eight to 25 — 17 Republicans and eight Democrats — and S. 1212 had grown from the original 11 to 21 — 11 Republicans and eight Democrats and two Independents, who caucus with the Democrats.

But more support is needed to not only have the provisions of these two bills become law, which would be good, as explained below, but would be very important in making sure what ESOP companies have now that increases their profit after taxes remains the law, in view that sometime in the near future all tax laws will be scrutinized, and many eliminated or reduced.

And the bar we have to measure the support for ESOPs in Congress is the bar set in 1993, when 102 members of the House sponsored pro-ESOP bills, and records indicate the high in the Senate was 29 in 1995. Those numbers made a difference when the Ways and Means Committee in 1996 and the Senate Finance Committee in 1996, without opposition, passed the law permitting S corporations to sponsor ESOPs. [As a general rule, it takes often six to eight years from the day a “new” tax benefit idea is introduced to when the tax committees put the idea into a bill it sends the House or Senate floor.]

To move the Congress to put into law the provisions of S. 1212 and H.R. 2096 that would permit a seller of S stock to an ESOP to defer her/his capital gains tax on the proceeds as the seller of C corporation stock has been able to do since 1985, per the provisions of IRS 1042, and to ease the SBA bias against ESOPs when deciding if a small business that has an SBA preference should continue to have that preference when the ESOP owns more than 50% of the company, there needs to be many more sponsors of H.R. 2096 and S. 1212.

Impossible? No, because there are 124 members of the House and Senate who are ESOP advocates because they have sponsored pro-ESOP bills before this year. So, subtract 46 current H.R. 2096 and S. 1212 sponsors, and there 78 men and women in the House and the Senate that have sponsored bills in prior Congresses that are identical to H.R. 2096 and S. 1212.

ESOP advocates just have to ask, via letter, via an ask during a company visit in August, or a town hall session in August, or at a civic club.

Go to the Advocacy Kit, where there is the suggested letter for co-sponsoring these bills — to get suggested words for the ask.

Resting on laurels because it appears that not having any bad ESOP recommendations in last year’s big tax reform proposal put forward by the former Chair of the Ways and Means Committee, Dave Camp, and recently a task force of the Senate Finance Committee recommended consideration of S. 1212 when it takes up major tax reform legislation in the next two to three years, would be dumb, and dumber.

Let’s raise the bar — let’s have the mark reached in 1993 reached again — let’s expand incentives for creation and operation of ESOPs.

It is doable.

RELEASE: Expansion of S ESOPs Recommended by Senate Finance Committee’s Tax Reform Working Group on Savings & Investment

The ESOP Association sent out the following release today.

For Immediate Release: July 8, 2015

Expansion of S ESOPs Recommended by Senate Finance Committee

Senate Finance Committee Tax Reform Working Group on Savings & Investment Releases Report on Findings

July 8, 2015 (Washington, DC) – The Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment released a report on their findings for reforming the tax system. Recommendations include the expansion of gain-deferral provisions of Code section 1042 for S ESOPs (employee stock ownership plans) and guaranteeing that small businesses with SBA certification do not lose their status when they become majority employee-owned companies.

“The ESOP Association and employee ownership community express strong support and appreciation that the major provisions in S. 1212, the Promotion and Expansion of Private Employee Ownership Act of 2015, are recommended for inclusion in reforms that will be considered by the Senate Finance Committee,” said ESOP Association President, J. Michael Keeling. “Including these provisions would open the door for the creation of more S corporations sponsoring employee ownership for average pay Americans.”

S. 1212 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of ESOPs in S corporations in America.

Page 13 of the memo from the Savings & Investment Working Group, which is co-chaired by Senator Michael Crapo (R-ID) and Senator Sherrod Brown (D-OH), states: “S Corporation Employee Stock Ownership Plans, or S-ESOPs, have a track record of providing retirement security for employee-owners of both small and large businesses. S. 1212, introduced by Senators Cardin and Roberts, contains several provisions to further encourage employee-ownership in S corporations, including extending the gain-deferral provisions of Code section 1042 to sales of employer stock to S-ESOPs, providing resources to small businesses contemplating making the transition to an ESOP, and ensuring that SBA-certified small businesses do not lose their status by becoming employee owned. The working group supports consideration of these bipartisan proposals; S. 1212 currently has 18 bipartisan cosponsors in addition to Senators Cardin and Roberts, including 9 Republicans, 7 Democrats, and two Independents.”

Keeling concluded, “It’s very encouraging to see continuous, bi-partisan support for expanding our capitalistic economic system. Our country’s founding fathers noted that broad-based ownership of productive assets is essential to a working democracy.”

In March 2015, The ESOP Association submitted comments on comprehensive tax reform to three of the Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment. The Association specifically stated how ESOPs are in accord with the seven principles outlined by Finance Committee Chair Orrin Hatch (R-UT) for comprehensive tax reform — Economic Growth, Fairness, Simplicity, Permanence, Competitiveness, Promoting Savings and Investments, and Revenue Neutrality. Read the full statement on The ESOP Association’s website: http://www.esopassociation.org/advocate/esop-bulletin.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

 

More Information:

Amy Gwiazdowski

202/293-2971

amy AT esopassociation.org

@ESOPAssociation

June 2015 Roundup

It’s the last day of June so a monthly wrap-up it is!

Upcoming 2015 July events

Support for ESOPs

The June 2015 Washington Report from the ESOP Report

Welcome to new corporate members

We shared a pic of the 2015 Employee Ownership Month Poster Contest winner

Show your ownership spirit

The June 2015 ESOP Report was published

Registration is now open for the 2015 Employee Owner Retreat

Jobs remained stable in the employee stock ownership sector

ESOP advocates list

Spring Advocacy Kits

Dates announced for the 2015 Employee Owner Retreat

We noted how to access Issue Briefs and the Membership Directory on the website

Carris Reels beats the drum for ESOPs