Lawmakers, small businesses praise employee stock ownership plans

Lawmakers and current and former small-business leaders on Wednesday praised a type of retirement plan that is intended to facilitate employee ownership of businesses.

“Our economy works best when America’s entrepreneurs are free to make their own decisions, take their own risks and run their businesses as they see fit – free from government interference,” House Small Business Committee Chairman Steve Chabot (R-Ohio) said at a hearing of the committee. “That is exactly what employee stock ownership programs — or ESOPs — do.”

{mosads}Under ESOPs, companies contribute stock which is maintained for employees participating in the plans. S-corporations — which split up tax payments among shareholders — have been able to maintain ESOPs since 1998.

Research shows that ESOP companies tend to perform better than their non-ESOP counterparts in part because they improve employees’ commitments to the businesses, said Alex Brill, a resident fellow at the American Enterprise Institute.

Jay Hardy, president of a California-based medical device manufacturer called Hardy Diagnostics, said his company has grown by 78 percent since becoming an ESOP.

Rep. Janice Hahn (D-Calif.), said that while politicians on both sides of the aisle are talking about income inequality, “it’s been really amazing to hear from our witnesses today that proved that you don’t have to choose between people and profits.”

“You can follow business practices that actually promote both,” she said.

Lawmakers and witnesses at the hearing discussed a bipartisan bill to incentivize ESOPs that was introduced last year by Reps. Dave Reichert (R-Wash.) and Ron Kind (D-Wis.). The bill would encourage S-corporation owners to sell their stock to ESOPs, provide technical assistance for S-corporations interested in forming ESOPs and make sure that small businesses with ESOPs don’t lose their certification from the Small Business Administration (SBA).

The bill has been referred to the House Ways and Means Committee, which as of Wednesday has not scheduled a vote on it. But more than 60 House members have co-sponsored the bill, including several Ways and Means members.

Chabot said that as a result of the hearing, he was going to direct his staff to add him as a co-sponsor of the bill.

Peter Strange, chairman emeritus of Messer Construction in Cincinnati, said the bill “will allow more hardworking Americans to share in the American dream at work.”

Messer’s ESOP has fostered its growth, Strange said. The company provides jobs and predictable retirements for more than 1,000 people and has retirement assets of more than $220 million, he said.

Stephanie Silverman, president and executive director of the group Employee-Owned S Corporations of America, said she hopes Congress advances the bill because more ESOPs “mean more worker savings, more wealth and wage equality, and more job stability.

House Small Business Committee ranking member Nydia Velazquez (D-N.Y.) said that Congress should “be doing more to enlighten employers and make [ESOPs] a more attractive retirement vehicle.” But she expressed concerns that the bill does not protect ESOP businesses from losing their eligibility to participate in SBA and other government programs strongly enough.

Tags Dave Reichert Ron Kind

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