ESOPs in the Air

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

If you would like additional information about newly introduced pro-ESOP legislation, read the ESOP bulletin.

This past month a set of inquires came in to The ESOP Association that the office has never really seen before.

Traditionally, when a committee, or committees, of the Congress, usually tax committees, work on revising law, or adding law pertaining to ERISA plans in general, and ESOP law in particular, it is not uncommon to have a Congressional office reach out to the Association’s office with questions. Not as frequent, but not unusual, the reach out is from a Congressional office of a member of the Congressional committees with jurisdiction over Title I of ERISA, which has the fiduciary provisions of law, along with some provisions on diversifying ERISA plan’s assets — these committees are often loosely referred to as the education and labor committees.

And we must cite one other example of why the Association might hear from a Congressional office — the member has openly and publicly co-sponsored a pro-ESOP legislative proposal, and the Association has that member listed publicly on its website as an ESOP “advocate.” Most often, and it is almost without fail, these members of Congress jumped on the pro-ESOP bandwagon due to direct visits with an ESOP company, or companies in her/his district or state.

But, here is the new development that triggered Association staff direct involvement with government relations responsibilities to sit back and wonder, “How come?”

How come over the past two months Congressional offices whose elected leader is not listed as an ESOP advocate, and who is not on the tax or labor committees of Congress, have unilaterally reached out to the Association’s DC office desiring to have a briefing on ESOP law, and to talk about new proposals the Representative or Senator is pondering to encourage ESOP creation?

While it would be dumb to set forth concrete reasons, there is reasonable speculation as to why are these not heard from before members of Congress reach out to the Association for ESOP information.

Interestingly, all of these inquiries came from a Congressional office of a Democrat.

So, what is it that has Democrats who have not been ESOP advocates, and who do not serve on a tax or labor committee, interested in promoting ESOPs?

It is a series of developments: One, the book The Citizen’s Share by respected academics Drs. Joseph Blasi and Douglas Kruse of Rutgers, and Dr. Richard Freeman of Harvard, attracted the attention of a think tank whose reputation among Democrats is very high — the Center for American Progress, or CAP. CAP staff, even before the book’s publication, was reviewing various policies that would increase the wage and wealth of average pay Americans, and broad-based ownership was on its radar screen for review. CAP staff actually had a half day roundtable discussion, with persons knowledgeable about broad-based ownership.

To highlight its work to increase income and wealth of average pay citizens, CAP sponsored a “summit” of top economists and opinion leaders that issued a paper full of recommendations to address income issues. In the paper was a straight forward endorsement of policies to increase “ownership” among more Americans, and ESOPs were specifically cited as an example of a program that did broaden ownership.

In conjunction with the CAP paper, famed economist Peter Orszag, who was President Obama’s first Director of the Office of Management and Budget, a very influential position in our government though not realized by most citizens, wrote a very straight to the point opinion piece for the widely read Bloomberg blog stating that President Obama needed to be forceful in promoting more ownership among Americans, citing ESOPs as did the CAP summit document.

Meanwhile on two recorded occasions — i.e. not a back room unpublished conversation — for the first time since Robert Reich was Secretary of Labor, the current Secretary of Labor, Thomas Perez, gave a glowing endorsement of ESOPs as good policy.

And, the Employee Ownership Foundation (EOF): You read it right, the Association’s affiliated 501(c)(3) was not directly involved, but…. Research supported by the Foundation and the publicity garnered by data gathered made its way into the discourse, woven into The Citizen’s Share in certain passages and sections — cited not as EOF materials, but citing work that neutral third parties had done on broad-based employee ownership that EOF helped fund, but certainly not controlled; data in a similar vein noted by the CAP staff people working on how to increase more ownership among average pay persons.

So, Democrats that prior to a few months ago did not take note of employee ownership, are beginning to do so.

Let it be said without hesitation; throughout the 90s and first 14 years of the 21st Century, the vocal men and women in Congress for promoting ESOPs were Republicans — much of its stemming from these men and women coming of maturity when their favorite national figure Ronald Reagan was President, and who was the best friend ESOPs ever had in the White House.

Always support for ESOPs in the tax and labor committees have been both Democrats and Republicans; and always the list of advocates is nearly balanced between the two, as when a member of Congress learns about ESOPs up close and personal on a company visit, s/he becomes a supporter.

But recently, it is pleasing to see the interest in ESOPs grow as opinion leaders that have the ear of Democrats in Congress have become more open about the value of employee stock ownership via the ESOP model.

Let us not let the “new” interest falter.

Use Time Wisely: Think Elections

The following article originally ran as the Washington Report column in the October 2014 issue of the ESOP Report, the newsletter of The ESOP Association.

If you’re joining The ESOP Association at the 2014 Las Vegas Conference & Trade Show at Caesars Palace this November 13th and 14th, there will be an election wrap-up by ESOP Association President, J. Michal Keeling, at the Friday Lunch: November 14, 12:15 pm – 1:45 pm, Palace Ballroom.

Use Time Wisely: Think Elections

It is a waste of time to talk about what Congress may do in its lame duck session after the November Mid-term elections. Who knows, as crisis after crisis is exploding, and what next week will require is unknown, much less what will be the focus of Congress in November and December.

But, with members of Congress, the vast majority running for re-election, some in tough races, some not, moving around their districts and states, it is a perfect time to have your Congressperson, or her/his staff, or Senator, or his/her staff, come visit, or to interact at a local event, or to send a letter, or if you have contacts in her or his office, an email, asking that s/he co-sponsors H.R. 4837, the House pro-ESOP tax bill, or S. 742, the Senate pro-ESOP tax bill.

The track record is clear: Since 1990, on advice of the then leading champion for ESOPs on the House Ways and Means Committee, as the ESOP community came out of the 80s with a tax bill nearly every year, often reducing ESOP tax benefits, said to ESOP leaders: “You people need an offense; remember the best defense is an offense. I will introduce each Congress a pro-ESOP tax bill, bi-partisan, so we get members to say that they are “for” ESOPs, sending a message to those in the government and on Congressional professional staffs that are ESOP cynics, that if you want to hurt ESOPs, you will have a tough fight on your hands.”

So, each Congress, since 1990, the ESOP community has been able to go to members of Congress to get them to declare that s/he is for employee ownership through the ESOP model, and it is clear that when literally 100 and sometimes more, many on the tax committees of Congress, make it clear before the tax committees begin work on reducing tax benefits in order to lower tax rates, those with a knife out for ESOPs say, “Why take on a task and lose?”

A more colorful comment by a member of Congress some years ago who still serves on the House Ways and Means Committee when S ESOP advocates protested the proposal in 2001 to apply a corporate income tax on the ESOP’s share of its S sponsor’s taxable income, he said, “I learned a long time ago not to step on that ESOP snake!”

His remark was basically saying that the pain from other members not liking any negative action against ESOPs was not worth the amount of new tax revenue gained by squeezing ESOP companies and employees to pay more money.

“Stay with it” is the motto for now, and for the next two months, if your member of Congress is not a co-sponsor of H.R. 4837, or S. 742, ask; do not be bashful.

And the Election: For years the holy grail goal for ESOP advocates has been that some day, just some day, there would be ESOP voters, who would vote, or at least have a major reason for their vote, on how the candidates stood on ESOPs. The ESOP community is not there yet, but….

There is growing evidence from Association members that they do care how candidates stand on pro-ESOP policy — not big evidence but evidence. Take a look at the list of pro-ESOP men and women on the Association’s website: http://www.esopassociation.org/advocate/advocacy-kit/esop-advocates. First, see if your Congressperson or Senator is on the list. Then take note if s/he is in a tough re-election fight. Then think about how you will vote, in accord with your values, and your personal and company’s benefits from the ESOP, and put that into your calculation about how you will vote.

Your vote is your business; the Association respects how you vote, but thinking ESOP when you vote is not wrong; it is right.

Tired of Reading It; Tired of Hearing It

This article originally ran as the Washington Report column in the November 2013 issue of the ESOP Report, the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

Maybe the reader is tired of reading it — or as in the case of Las Vegas, or one of the many Chapter conferences since August — tired of hearing it. But, the tax reform process has begun, and it is real. There are those who think all the talk about tax reform and the potential impact on ESOPs is malarkey because this Congress, and this Administration, cannot agree on the basics, such as a farm bill, or a highway bill. Who would ever dream a tax reform bill would go to President Obama? Sort of a “what me worry” attitude.

To repeat the basics — since early September, the House tax committee’s Republican members have been meeting in closed door sessions regularly to decide on how to raise approximately $10 trillion in new taxes over 10 years in order to lower the top rate for businesses and individuals to 25%, and to lower the top rate for all middle and lower income persons to 10%. In short, to lower tax rates drastically, but to not increase the Federal deficit, means “new” revenue has to be collected by eliminating, or drastically reducing, nearly all special tax laws, such as those benefiting ESOP creation and operation. [Other provisions that might have to go, or be reduced, are home mortgage deductions, charitable giving deductions, local government tax exempt bonds, and capital gains differential, for example. In other words, everything from super big, to middle sized, down to small sized tax benefits. ESOPs would be in the middle sized small benefit at an estimated $2 billion a year.]

As of this writing, the committee, the House Committee on Ways and Means, has not released its final recommendations, but a release is anticipated.

Cynics who say that a tax reform bill is not something to worry about are correct for two reasons — 1.) what the Ways and Means Committee does with legislation will probably not attract Democratic votes, and 2.) it will also not result in President Obama, nor the Senate, agreeing on the Ways and Means Committee bill.

As has been said over and over and over, however, — and how about saying it again over and over and over — Congress will eventually pass a tax reform bill. Whoever is President will sign such a bill, be it President Obama, or his successor. And that bill will, if past is prologue, look very much like the first one passed out of the House Ways and Means Committee. This fact is why what is happening now is important to all ESOP advocates.

The ESOP community must fully engage in telling the wonderful success story of how the vast majority of ESOP companies are providing jobs, good sustainable jobs; but most importantly, displaying the unique “vibe” present in the overwhelming majority of ESOP companies.

Sure, if ESOPs get hurt in the provisions of a House Ways and Means Committee bill, there will still be a chance to protect ESOPs in the Senate process. [Consider the trivia question put to Las Vegas Conference attendees recently — what do the last four Presidents have in common? Answer: They all lost their first race to be a member of Congress. Did they give up their political careers as a result? Obviously not, as all became President.]

But why play with fire? The tax reform process is underway, big time, in the House Ways and Means Committee. Now is the time to convey the view that Congress should preserve and promote the best jobs program in America — ESOPs.

Once Again: Save ESOPs

The following is a reprint of the Washington Report column which ran in the July 2013 ESOP Report, the newsletter of The ESOP Association.The ESOP Report is a members only publication. Additional information can be found here.

It sounds repetitious, but the Association has posted on its blog, on its Facebook page, on its LinkedIn group, in special email bulletins, and wherever it can be placed, that events are shaping up in our national government that present the greatest policy threat to positive policies for ESOPs since 1989. [Some ask, what was the threat in 1989? While ancient history so to speak, in 1989 the House Ways and Means Committee had before it a proposal made by the Chair at the time, the late Dan Rostenkowski of Illinois, to repeal all special tax benefits for ESOP creation and adoption created in the tax bills of 1984 and 1986. This threat was beaten back when the full Committee adopted an amendment by former Congressman Beryl Anthony of Arkansas, aided by former Congresswoman Nancy Johnson, and this is important to note, endorsed by the Treasury Department under President George G.W. Bush, that took down the effort to eliminate special ESOP tax benefits. Since 1989, there have been occasional “disputes” challenging the ESOP community over a proposed regulation, or even a proposal modifying one ESOP tax benefit — 1994, 1995, and 2001 — but never a challenge to the entire ESOP package.]

But experts in the human resources profession always remind us that just as “you get tired of saying something one more time, someone is listening for the first time.”

So, the House and Senate tax committees are deep in a process to reform the Federal income tax code. They are not just talking, nor are they waiting to have the leaders of the House and Senate promise them that any tax reform bill they develop will be considered on the floor of the House and/or Senate. The Chairs of the tax committee, Congressman Dave Camp of Michigan, House Ways and Means Committee, Senator Max Baucus, Senate Finance Committee Chair, both have a process for developing legislation sometime in the fourth quarter of this year.

While they are following processes that are not typical of how major tax bills were developed in the past, the goals are the same as evident in the past — eliminate special income exclusions, credits, deductions, and deferrals in the current tax laws, take the additional tax money raised to cut the tax rates on income, personal rates and corporate rates, and in doing so make the tax code more simple, in other words, easier to follow in calculating taxes owed. [Media likes to hoot and holler that the two parties will not come together under this approach because supposedly the Democrats want to use the extra revenue from eliminating special tax laws to collect more money to lower the Federal debt, whereas Republicans want to use all the new revenue to lower tax rates. Yes, these two different views of what to do with the extra revenue exist, but there is a great deal of common ground between the two parties in the tax reform debate.]

Even though The ESOP Association has become a “Johnny-one-note” in communications with members about being engaged to tell elected Federal officials about the power of employee ownership through the ESOP model — repeat over and over after telling the good story of the ESOP company that data proves overwhelmingly that in the vast majority of instances, ESOP companies are more productive, more profitable, providing sustainable jobs controlled locally in the U.S. than non-ESOP counterparts — and in doing so, hopefully have that member of Congress be willing to say, “OK, do not harm ESOPs with misguided steps to lower tax rates when the best jobs policy is having employees be owners in their companies where they work, and also make income better for the working men and women of America.”

Stay in touch with the Association’s website where you can find all the up-to-date background materials on how to save your ESOP; watch for blog postings, and if just now getting engaged, read the blog archives; watch for YouTube video updates.

Remember, if ESOPs are harmed in the process to developing new tax law, one can spot the blame by looking in the mirror — no exceptions.

ESOP Support: Trending Democrat or Republican? Or Still Bi-Partisan?

The following article originally ran in the August 2012 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

With the quadrennial Presidential election season here, with the two candidates for President — President Barack Obama for the Democrats and Governor Mitt Romney for the Republicans — and with many very contested races in the U.S. Senate and the U.S. House of Representatives up for grabs, many in the ESOP community ask, “Who is most for ESOPs? Democrats or Republicans?”

On a case by case basis, that question cannot be answered. As noted in a YouTube posting on July 25, 2012, President Obama said once at a “town hall” like meeting in Virginia, where he gave a general explanation of what an ESOP is, that employee ownership should be encouraged. Governor Romney when visiting an ESOP company in New Hampshire said he thought it was good for employees to have “skin in the game.”

But neither said anything to indicate that he would openly and sincerely push for laws to encourage ESOP creation and operation, or even to protect current beneficial ESOP laws, as President Ronald Reagan did. Nor has either released a statement specifically endorsing ESOPs as Senator John McCain did when he was running for President in 2008. (Note, however, the long-time, strong support by Congressman Paul Ryan, the Republican Vice Presidential nominee here.)

So, in trying to decide if either party is more pro-ESOP than the other, so far in the 2012 Presidential campaign, best to leave the two candidates for President on the sidelines right now for purposes of this Washington Report. [Some have set forth that the actions of the current Administration’s Department of Labor that are not favorable to ESOPs should be determinative of whether President Obama is for positive ESOP laws. But, Democrats in the ESOP community rightfully note that ESOPs are not that big of a deal to have White House attention, given the challenges on the President’s desk daily. On the other hand, Republicans in the ESOP community stake out a claim that the “CEO” of the Federal government, the President, should be accountable for what a “division,” the Department of Labor, does or does not do.]

And, clearly there are men and women in Congress who are voting with the most “liberal” view of national policy who are demonstrating very strong pro-ESOP positions, such as Senator Sanders [I-VT], and others, such as Senator Ayotte [R-NH], thought to be representing the more conservative view of national policy  that are just as pro-ESOP. And these case by case comparisons could go on and on.

One metric that is more macro yields more clear cut evidence that in the House of Representatives overall, up to this point, more Republican members of the House have taken pro-ESOP positions in the current Congress compared to Democrats in the House.

In the current Congress, there is one clear cut, pro-ESOP bill pending designed primarily to increase tax incentives for the creation of S ESOPs, and to rectify an SBA policy that is biased against all majority owned ESOPs. The bill, H.R. 1244, was introduced by a bi-partisan group of six members of the House Ways and Means Committee, where all tax laws originate — three Republicans and three Democrats — on March, 29, 2011.

Now, after many ESOP companies have asked their members of Congress to co-sponsor the legislation, H.R. 1244 has 86 members of the House saying that they are “for” this pro-ESOP legislation, or 19.7% of the total number of members of Congress. 63.9% of these 86, or 55, are Republican members of the House, while 36%, or 31, are Democratic members of the House. But these numbers have to be taken in the context of how many Republicans are there in the House compared to Democrats. 55.6% of the House members are Republicans, so the 63.9% is not that much more than the total percentage of Republican members in the House, whereas the Democrats make up 44.3% of the House, and the spread to 36% is a little more, but not much.

But on the House Committee, the House Ways and Means Committee, where the key laws impacting ESOPs originate, the spread between Republicans and Democrats is more telling. 48.6% of the members of the House Ways and Means Committee’s 37 members, or 18, are sponsoring H.R. 1244. [To really feel safe in the upcoming tax reform legislative effort, the ESOP community needs at least 28 or so men and women on the Committee to be “for” ESOPs.] But of the 18, 13 are Republicans, or 60% of that group, and 33%, or five of the 15 Democrats are sponsoring H.R. 1244.

On the Senate side, there is considerably more legislation pending that can be labeled pro-ESOP.

There is the pro-S ESOP tax law changes and SBA change for all ESOPs in S. 1512. Its overall support is similar to the House — 17 Senators are sponsoring, or 17% of the Senate. [The Senate has 100 members so math is real easy to calculate in the Senate.] The split is remarkably even, and nearly the same as the overall split in the Senate. Eight of the 17 are Democrats, seven are Republicans, and two are officially Independent. The primary sponsor, who dropped the bill, as they say in Congress, was Senator Ben Cardin (D-MD), a Democrat.

In the Senate, the key tax committee is the Committee on Finance, which really gave birth to modern ESOPs in the mid-70s when Democrat Russell Long of Louisiana was Chair. But in this Committee, support for S. 1512 is not as impressive as support for H.R. 1244 is on the House Ways and Means Committee. Only four Senators on this key Committee are “for” S. 1512, two Democrats and two Republicans.

Now the Senate has other, non-tax pro-ESOP bills, one primarily supported by Republican Senators trying to stop the DOL’s proposed regulation to make ESOP appraisers ERISA fiduciaries, and two bills primarily to have government programs to help finance ESOP transactions, and to have DOL actually promote employee ownership and participation.  These last two bill were just introduced, its five sponsors are four Democrats, and the lead author is Senator Sanders, who caucuses with the Democrats in the Senate. The stop DOL bill, authored by Senate Ayotte, has six other sponsors, but only one is a Democrat.

Both Senator Ayotte and Senator Sanders are seeking more support for their bills — S. 1232 by Senator Ayotte, and S. 3419 and S. 3421 by Senator Sanders. [See June 2012 and July 2012 issues of the ESOP Report for details.]

Bottom line: The ESOP community can feel pretty good that support for ESOPs still crosses party lines in nearly all these metrics, except perhaps the metric of support for the current pro-ESOP tax bill H.R. 1244 among members of the key tax committee, the House Ways and Means Committee.

And, despite what cable TV says, having broad based support pays off for an interest group in the long run, as the wheel of fortune for the political parties is always turning, and what does go around, comes around.

ESOP Advocates Leaving Congress: Impact?

The following ran as the Washington Report column in the March 2012 issue of the ESOP Report, the newsletter of The ESOP Association. A copy of the ESOP Report can be downloaded from the members only section of the Association’s website.

When Senator Olympia Snowe announced, unexpectedly, that she was not going to seek re-election, many persons dedicated to ESOPs and protecting ESOPs against misguided attempts by certain “experts” to eliminate, or curtail, ESOP promotion laws contacted me wondering, “Will this be very bad for us to lose this super champion?”

[While most readers of this column follow the Association and its members’ efforts to keep ESOP law strong, to refresh memories, Senator Snowe made an unequivocal pronouncement last fall pledging to protect current ESOP law during tax reform.  The Association posted this pledge on its YouTube Channel, (to view the video, use this link youtu.be/8H-RAtdvji0) and noted that in its 35 years of work for positive ESOP law, no member of Congress has ever made such a pledge for ESOPs.  Most members of Congress hedge their bets on how they will conduct themselves in the private meetings where tax laws are truly hashed out, as no one can predict precisely what proposals will be in front of the legislators.  It is important to note, in no Congressional district in the U.S., nor in any state of the U.S., are ESOP companies so numerous to be a major economic factor.]

And what many may not realize, there are more members of Congress than ever in history having taken public positions in support of pro-ESOP law and regulation; 160 at last count.  Of that 160, ten have announced retirement or have been defeated for re-election in a primary, and thus will not serve in Congress beginning in 2013 when consensus view is serious work will begin on tax reform, and ESOP law will be reviewed for possible change.  And that list will grow to 12 in a few weeks as four ESOP advocates are facing off in primaries to be held before the end of March.  It is easy to predict that the 12 can be as high as 20, up to 30, by year’s end.

But, let the ESOP community not fret; while the media seldom makes this point, turnover in the Congress is greater than the general assumption.  A good way to think about turnover in Congress is not to count how many new members there are every two years, but to think of “compound interest.”  Anywhere from five to ten percent of House and Senate members retire and/or are defeated every two years.  In three election cycles, or six years, the number of relatively “new” members of Congress falls anywhere between 75 to 144 persons.

And, the ESOP community, when it had far fewer friends in Congress, suffered a much more dramatic development when former Senator Russell B. Long, the godfather of ESOP promotion law, retired in 1987.  Many in the ESOP community felt that with his retirement it was going to be curtains for ESOPs.

But it was not, and really in the past 14 years, only positive new law has been enacted for ESOPs.  [Senator Long said to representatives of The ESOP Association upon sensing a fear of losing upon his retirement, “If the ESOP people cannot protect and preserve positive ESOP law after I leave, then ESOPs do not deserve to keep those laws.”]

In sum, Senator Snowe leaving Congress is a stumbling block for protecting ESOPs.  As the old maxim goes, however, the ESOP community should make its stumbling blocks its stepping stones.  So, expect, as in prior years, the strong grass roots voices of the ESOP community to respond effectively after losing friends in Congress.

Be Respectful: But Be Respected as Well

The following article originally ran in the September 2011 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

The ESOP brand among members of Congress who have visited with ESOP companies, or have welcomed ESOP delegations to their Washington offices, is ESOP people are hard working, good Americans, who are civil — in other words, the ESOP brand is just the opposite of the screamers and the insulters.  [Why people think salt is more effective than a little bit of sugar is hard to understand.]

But, in the ESOP community’s fight against the negative ESOP proposal from the Department of Labor (DOL) to make all appraisers of private company ERISA fiduciaries, many ESOP advocates are disappointed with the answers they are receiving from offices of both Senators and members of the House of Representatives in response to their respectful requests that their representative stand up for the pro-ESOP position and against the DOL position.

A brief note of explanation is needed for those not following this campaign closely before setting out what needs to be done by those who are disappointed with the answers they are receiving from their elected Federal officials.

The October 22, 2010, DOL announced a proposal that would redefine who is an ERISA fiduciary, not just appraisers of ESOPs, but anyone who gives advice about where to invest 401(k) money, including what investments to offer, where to put the money the employee invests, and what the employees do with the money, and anyone who does a similar task for those who are setting up, or investing in an Individual Retirement Account, or IRA.

Of the three areas of retirement savings — ESOPs, 401(k)s, and IRAs — the number of ESOPs, and the amount of money in ESOPs, and the number of persons who work in the ESOP service provider arena, is very small compared to the number of persons participating in 401(k)s and IRAs, the amount of money in 401(k) and IRAs, and the number of persons who provide services to 401(k) and IRA participants.

While it took the financial advisor firms, the k plan service providers, the banks holding IRAs, stock brokerage firms with thousands and thousands of people working with clients with IRAs and/or k plans, much longer to wake up to the danger of the DOL proposal than it did the ESOP community — being smaller means often leaner and more nimble — once awake, the k and IRA world have much heavier advocacy power than the ESOP community.

Plus the arguments for stopping the DOL proposal with regard to who is a fiduciary to k plans and IRAs are in several respects very different from the arguments for stopping the DOL ESOP appraiser proposal.  [In some respects they are the same: lack of data supporting the proposed regulation, increase service provider fees, and blatant ignoring of what other Federal agencies, such as the IRS in the ESOP arena, and SEC in the banking/financial arena, do in this area even though there is a Presidential order that agencies coordinate their regulations.]

So what is the point of this column?

In brief, many ESOP advocates have reported to the national office they wrote, or visited, with their elected officials about the DOL proposal, and the response from those officials was about the k and IRA issues, not the ESOP issues.  Some responses are very strong noting the member of Congress is doing all s/he can to stop the bad DOL “k and IRA” proposal.  It is easy to see that the ESOP advocate receiving such a response wants to scream, “I wrote about ESOPs; not k and IRAs!”

Most ESOP advocates have in turn passed along their disappointment with a statement that “what do you expect” from these do nothing, know nothing, silly members of Congress we have these days.

Well, while the cable news that leans to the left says that about Republican members of Congress, and the cable news channel that leans to the right says the same about Democratic members of Congress, the fact is that getting disgusted will not win for the ESOP position.

So, we are adding to our advocacy kit a suggested “second” communication for the ESOP advocates to the member of Congress who has not understood what the ESOP advocate wrote about in the first instance — the ESOP message.

The second letter will be respectful, but will make it clear: an ESOP advocate with an ESOP company deserves to have her/his concerns respectfully considered.

[Candidly, a letter or message from a member of Congress missing the mark is all about bad staff work, but we have to be respectful of staff people as well.]

In other words, the ESOP brand of being civil and respectful will be honored always; but by gosh, what ESOPs do for employees and their companies, and their communities, needs to be respected.

Balance: Good News for ESOP Advocates

The following article originally ran in the August 2011 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column.  The ESOP Report newsletter can be found in the members only section of The ESOP Association’s website.

The general view of the U.S. Congress right now is supposedly dog eat dog between the two political parties — the TV cable news says it, the social media says it, the President says it, members of Congress say it, academics say it, and so on.

Well certainly on big picture issues, such as how to control the national debt, how to lower medical care costs, etc., what everyone is saying about Congress is more or less correct.

Some ESOP advocates have heard the big picture news, and express concern that The ESOP Association and the community it represents has gone over to the “Republican” side too much.  These advocates of course have values that trigger voting for Democratic candidates.

Whether one’s world view is more in line with the Democrats or the Republicans, on smaller public issues, and sadly ESOP policy is not a major public issue in the U.S., the general view of U.S. policy making is wrong — having supporters in both parties is the key to preserving a preferred small interest policy.

[For example, a positive signal from the hearing on the DOL appraiser regulation mentioned on page one, was criticism about the proposal was made by both Republican and Democratic members of the Subcommittee.  If the critics were only Republicans, any impact on DOL officials would have been muted.]

So, is it the case that ESOP advocates are tilting in a major way to the Republicans in Congress, so that when the fight over tax reform erupts, and it will sooner or later, a risk if the pendulum swings back in favor of the Democrats before serious tax reform legislation is considered by Congress?

Well, here is the positive news.  ESOP support is balanced in Congress — with an almost equal division between Republicans and Democrats, and even with equal division within the various factions of the two parties — with a good split between the newer Republicans who came to office with the strong backing of the Tea Party, and senior Republicans, and with a good split between the “moderate” Democrats and the “liberal” Democrats.

And there is data to back up this assertion.

Right now, there are 126 members of Congress who have publicly done something, such as co-sponsoring a bill, or writing a letter, in support of a pro-ESOP position.  Ninety-eight are members of the House, and 28 are members of the Senate.

Fifty-four of the House ESOP advocates are Republicans, and 44 are Democrats.  Since there are more Republicans in the House than Democrats, the ten person spread is not that off the mark of the overall percentage of House members divided between the two parties.

Among the 28 Senate ESOP advocates, 13 are Democrats, and 14 are Republicans, and one is an Independent, who caucuses with the Democrats, and has Committee assignments under the Democratic banner.  So the split is really 50-50, and the Senate is nearly evenly split between the two parties.

But set aside the party affiliations.  How did the 126 ESOP advocates vote on the debt ceiling increase that received so much attention in late July and early August?

Again, the 126 ESOP advocates split their votes almost the same as the rest of the Congress.  Most voted yes, as did the entire Congress.  Those voting no were primarily affiliated with their Tea Party backers if Republicans and if Democrats with their more liberal backers, such as those in the MoveOn organization.

Bottom line is that the development of ESOP friends in Congress has not been about which political party should reign; it has been about ESOP companies and advocates promoting the positive impact of employee ownership through ESOPs on employees, on the company, and on the local community.

ESOP advocates have done well, and when the tough fight over tax reform breaks out and it is debated whether to have tax preferences for ESOP creation and operation, this balance will be beneficial.   ESOP advocates should continue to work for ESOPs in their communities, and not put their ESOP beliefs under a basket if their elected official is not of “their” party.