Corey Rosen
The American Rescue Plan Act of 2021 (P.L. 117-2) included an appropriation of $10 billion for another round of funding for the State Small Business Credit Initiative (SSBCI), a program that has been in place since 2010. SSBCI funds might make it easier for lenders to ESOPs to provide larger and less collateralized ESOP loans or for mezzanine lenders to loan at lower rates.
Corey Rosen
The IRS announced COLA (cost of living adjustment) changes for 2022 retirement plan limits (see Notice 2021-61 and the IRS's summary table with links to more information). Changes of special interest for ESOPs include:
Corey Rosen
A new NCEO analysis of ESOP litigation in closely held companies over the last 10 years shows that of 74 lawsuits involving trustees, 54 were for issues dealing with a transaction. The large majority of these concerned the ESOP’s initial purchase of shares from a seller, with the remainder dealing with either a second-stage transaction (1 lawsuit) or the sale of the company (5 lawsuits).
Corey Rosen
Jack Moriarty has announced the launch of Ownership America, a “public policy and grassroots advocacy organization founded to turn Americans into owners.” Founded by Jack Moriarty, who is now its director, Ownership America’s first efforts will focus on generating policy proposals and grassroots initiatives to help grow employee ownership. The first two projects include putting an advisory referendum urging support for employee ownership on the ballot in Massachusetts and drafting proposed legislation to create an Employee Equity Investment Act. The proposal would create Employee Equity Investment Corporations (EEICs), entities designed to help fund middle-market ESOP transactions. EEICs would function much like Small Business Investment Companies. EEICs would “deploy a combination of privately raised capital and federal loan guarantees to make a range of subordinated debt and equity-like investments in eligible businesses. EEICs would provide subordinated ‘first dollars in’ to a deal—funds that serve the same function as equity in the eyes of other lenders.” A number of legislators have already expressed interest in the idea.
Corey Rosen
We've just released this year's EO 100, our annual list of the largest 100 companies that are owned by an employee stock ownership plan (ESOP) or similar plan or, less commonly, where a majority of the employees directly own a majority of the shares. The largest company on the list is Publix Super Markets with 207,000 employees; the smallest companies on the list have 1,300 employees. The list shows that employee ownership is not a fringe economic phenomenon but rather an important part of the US economy.
Corey Rosen
A potentially major improvement in rules for ESOP defense contractors was included in the Senate Armed Services Committee’s markup of the 2022 National Defense Authorization Act (NDAA, S 2042). An amendment from Sen. Jean Shaheen (D-NH) would provide that the Department of Defense should create a pilot program that would allow companies that are or become 100% ESOP-owned to receive noncompete follow-on contracts for the work, even if they no longer meet applicable small business or other set-aside requirements. The award would be contingent on a finding that the contractor’s performance was satisfactory or better. The program would run for three years, and the Government Accountability Office would be required to provide an assessment of it with two years of the program’s sunset.
Corey Rosen
In Walsh v. Bowers, No. 1:18-cv-00155-SOM-WRP (D.C. Hawaii, September 17, 2021), a district court decisively ruled in favor of the trustee and the board of directors of the ESOP company Bowers+Kubota in an ESOP valuation case. The judge ruled that the DOL’s valuation "rests on errors" because its expert failed to follow standard valuation practices, used inaccurate and incomplete information about the company’s finances, and improperly compared the price the ESOP paid to a very preliminary lower offer from another company. The court noted that the preliminary offer was likely just a negotiating tool, analogizing that “an individual who makes an offer of $15,000 for a used luxury car with a Blue Book value of $40,000 does not, by virtue of making a ‘lowball’ offer that is never accepted, tend to establish that the car is worth only $15,000.”
Corey Rosen
Updated September 27
Corey Rosen
Employee ownership in Australia is limited primarily to employee stock purchase plans and employee equity grant programs such as stock options, although some advisors have figured out ways to create something that looks somewhat like a U.S. ESOP. A new report from the House of Representatives Standing Committee on Tax and Revenue titled Owning a Share of Your Work: Tax Treatment of Employee Share Schemes discusses the state of stock plans in the country.
