For those of a certain age (like me), Sears was the Amazon of its day. You could get almost anything but food in a Sears catalogue, and its stores were ubiquitous. My first house in the San Francisco Bay area was built in 1906 with plans from Sears. Early in his life my dad sold shoes for Sears. Back then, Sears put in 10% of pay into a profit-sharing plan that owned Sears stock. Contributions were based on years of service. If a salesman worked for Sears for decades, they could walk away with what would be worth over $1 million today. My dad didn’t stay long, but he sometimes mused about what might have happened. Sears ended the plan in the 1970’s, although it briefly had an ESOP in the 1980s as it was trying to find its way back in a changing retail landscape.
Oxfam, a nonprofit focusing on hunger and other poverty-rated issues, issued a report that includes a number of recommendations, one of which is “providing financial support to employee-owned businesses, including worker cooperatives. This includes the implementation of ILO [International Labour Organization] Recommendation no.193 on promoting cooperatives and relevant regional instruments.” That recommendation, which is specific to cooperatives, "provides non-binding guidelines in drafting and/or revising national policy and legislation."
In a potentially important ruling, a district court has dismissed a case against the defendants at Inland Fresh Seafood Company because the plaintiffs did not first exhaust the administrative remedies for complaints provided by the plan. In Bolton v. Inland Fresh Seafood Employee Stock Ownership Plan, No. 1:22-cv-04602-AT (N.D. Ga. Dec. 5, 2023), the plaintiffs contended that a 2016 $92 million sale to the ESOP was overpriced. The plaintiffs alleged that the defendants (including the independent trustee) and sellers to the ESOP (all of whom were executives of the company) and the executives each were acting as fiduciaries. The suit alleged the executives had already received multiple bids for the company at lower prices. The plaintiffs alleged that management provided the appraiser with highly unrealistic projections about significant increases in revenues and profits, which they alleged were accepted to provide a higher than fair value. The plaintiffs said the defendants sought multiple valuations for the stock and accepted the highest one.
Kerry Siggins, the CEO of Durango, Colorado-based StoneAge, was named CEO of the year by Colorado Biz. Siggins was the co-keynote speaker at our Kansas City annual conference this year. StoneAge is a 100% ESOP-owned water-blasting tool manufacturer in Durango, Colorado. Siggins became the CEO three years after being hired as director of operations when she was just 28 years old. She has led the company through significant growth, including two recent acquisitions. The company now has 200 employees. Siggins is the author of the recently published The Ownership Mindset: A Handbook for Transforming Your Life and Leadership, which covers her journey from substance abuse to recovery to getting an engineering degree and becoming a CEO. She also serves on Colorado Governor Jared Polis’s Employee Ownership Commission.
The Department of Labor (DOL) announced that it now expects to release its proposed regulations on ESOP valuation in March 2024. The DOL previously statedthat it expected to issue the proposed regulations by the end of 2023. The WORK Act, part of the SECURE 2.0 Act of 2022, requires the DOL to issue valuation regulations for ESOPs. The announcement does not specify a date in March, and it is not binding -- the proposed rules could be released before or after March.
In its 2023 Fall Economic Statement released on November 21, the Canadian government (the ruling party in Parliament) “introduce[d] a series of new measures to advance the government's economic plan by continuing to build a stronger economy, and provide[d] important updates on key pillars of the government's plan to fight climate change and create great careers for Canadians from coast to coast to coast.” The new measures include a tax exclusion on up to the first $10 million in capital gains from the sale of a business to a qualifying employee ownership trust (EOT) (p. 62 of the PDF version of the Fall Economic Statement). A similar law in the UK has spurred rapid development of EOTs, which are growing at a rate three times that of ESOPs in the U.S., even though the UK is much smaller.
In Notice 2023-75 (PDF) and an accompanying news release, the IRS announced yearly cost-of-living adjustments (COLA) of dollar limits for ESOPs and other defined contribution plans for 2024. The limits that affect ESOPs are:
On September 6, Missouri Governor Mike Parsons signed S.B. 20 (also see the PDF of the bill text), one of whose provisions makes permanent a law enacted in 2016 that provides a 50% reduction in state capital gains taxes for business owners selling to an ESOP as long as the ESOP owns at least 30% of the company after the sale. The law was originally set to sunset in 2023, but this new law removes the sunset provision, making it permanent. Iowa passed a very similar law in 2012
ESOP advocates have long urged the Department of Labor (DOL) to establish clear guidelines for adequate consideration requirements in ESOP transactions. The WORK Act (part of the SECURE 2.0 Act of 2022) requires the DOL to set guidelines for ESOP valuation. Simultaneously, the DOL has been facing a formal petition under the Administrative Procedures Act (APA) brought by the ESOP Association calling for the same formal rulemaking. The DOL denied the petition under the APA but nonetheless agreed to a formal public notice and comment rulemaking with a process that includes publishing their draft regulation through public notice and the opportunity for stakeholder comments. The agency must then respond to those comments before issuing any final regulation.
