A new NCEO study found that, over the last 10 years, 68 private company ESOP court cases had results in settlements or judgments that cost the defendants a total of $385.5 million. The average payout per employee in these cases was $14,400 per participant. If these costs were spread out over all private company ESOPs, this would average about $6,200 per year per company. Of course, that is not how these amounts are paid, but it provides context to compare what companies and/or ESOP trustees pay per company in fiduciary insurance.
Employee retirement plan holdings in company stock in banks have declined in the last two decades, but employees at Silicon Valley Bank (SVB) and several other banks saw significant losses following SVB’s implosion, according to analysis in a March 13 article by Pensions and Investments. SVB had a combined ESOP and 401(k) plan that held about 19% of its assets in 2021 (the latest data available), valued at about $245 million at that time. Several other bank retirement plans were significantly invested in company stock, including Zions Bancorp, which held 23% of its assets in bank stock as of the end of 2021. Its stock fell 36% from March 8 to March 13. Many other banks have between 5% and 10% of their assets in company stock. Recent federal action will probably ameliorate the sort-term losses in stock price for most of these banks, but SVB employees are not likely to recoup their losses.
The “Employee Ownership, Empowerment, and Expansion Act” (SB0085 and HB0154) has unanimously passed authorizing committees in both houses of the Tennessee General Assembly. The bill would provide a feasibility assessment and implementation tax credit for ESOPs, worker coops, and employee ownership trusts (EOTs) of up to 50% of the first $100,000 for ESOPs and $25,000 for worker coops and EOTs. It also would make employee-owned companies eligible for the same contracting preferences as minority-owned, woman-owned, service-disabled, veteran-owned, and disabled-owned businesses. It also directs the state to create an outreach program with existing resources to educate minority business owners about the law. Funds for the bill now have been included in the upcoming budget from the governor, and fiscal committees in both houses must approve it.
New Jersey Governor Proposes Funding for Conversion to Employee Ownership
New Jersey governor Phil Murphy’s proposed 2024 budget includes $6 million in funding for conversions to ESOPs, worker cooperatives, or employee ownership trusts. The proposal came out of a Wealth Disparity Task Force created in 2021. Modeled after a law in Colorado, the funding program would provide partial support for feasibility and other transaction costs. The proposal will have to receive authorization from the New Jersey legislature. Details on the funding are not yet available but should be when the governor delivers his budget address on March 7.
State legislation on employee ownership is gaining momentum, with bills passed in Colorado during 2021 and in Massachusetts and California during 2022. Two new bills have attracted important support in Washington and Tennessee, and bills will be introduced soon in Texas, Minnesota, and Pennsylvania. The bills in Washington and Tennessee were introduced in the past week, as described below.
The Consolidated Appropriations Act of 2023, an omnibus spending bill with many parts that was signed into law on December 29, contains major wins for employee ownership as part of the SECURE 2.0 Act of 2022. (The original SECURE [Setting Every Community Up for Retirement Enhancement] Act of 2019 was signed into law in December 2019 and modified various retirement plan rules, such as changing the age for required minimum distributions from 70½ to 72.) Section references here are to the SECURE 2.0 Act, not the appropriations bill as a whole, which contains many laws (e.g., there are multiple “sec. 114” instances, and one of them is in the SECURE 2.0 Act, amending Section 1042).
Lots of us love Dickens’s A Christmas Carol. The tale of Ebenezer Scrooge’s dream-tormented epiphany about what really matters in life has resonated deeply with people of all ages ever since it was published.
Ownership: Reinventing Capitalism, Companies, and Who Owns What won the 2023 William Foote Whyte and Kathleen King Whyte Book Prize for the best book of the year on shared capitalism. The award is issued by the Institute for the Study of Employee Ownership at the Rutgers University School of Management and Labor Relations.
Governor Charlie Baker of Massachusetts has signed a wide-ranging economic development legislative package that includes An Act to Enable the Massachusetts Center for Employee Ownership (S.261 / H.511), which will institutionalize the Massachusetts Center for Employee Ownership (MassCEO). The Office will be housed in the Massachusetts Office of Business Development. Much like the recently passed California Employee Ownership Act, the office will focus on outreach to business owners and serve as a resource hub for service providers and information. It will be led by a full-time director and will be able to make grants to local organizations to carry out its mission. The legislation also created a formal advisory board comprised of representatives from a number of stakeholder groups, including governor-appointed representatives from Massachusetts-based ESOP companies and worker cooperatives.
