The ESOP Association Testifies Before Congress
Over the last few decades, employee stock ownership plans (ESOP) have become a powerful succession planning tool. ESOPs provide many incentives to not only selling shareholders but also the company and its employees. It’s important the ESOP community rally together to help protect these benefits.
On February 12, 2020, Daniel Goldstein, president and chief executive officer (CEO) of Folience, Inc. and member of The ESOP Association Board of Governors, appeared before the U.S. House Small Business Committee and gave testimony regarding the challenges and opportunities employee-owned small businesses face.
An estimated 2.5 million baby boomer business owners are expected to retire in the next decade. Known as the silver tsunami, many of these businesses have no ownership succession plan or qualified buyer and face the possibility of being forced to either close operations or sell to a competitor. As Goldstein testified, ESOPs can present a qualified, willing buyer when others might not exist and provide benefits to employees and communities that wouldn’t otherwise exist. Congress enacted the Employee Retirement Income Security Act of 1974 more than 45 years ago, and the Department of Labor (DOL) has yet to finalize the rulemaking on proper ESOP administration. Goldstein stated, “The chilling effect resulting from an absence of clear and actionable regulatory guidance from the Department of Labor is immeasurable. Average employees pay the price when business owners turn away from forming ESOPs because DOL hasn’t done its job. Fear of making a misstep because DOL has not given guidance costs average employees wealth and job security.” Goldstein added, “Our company has seen businesses that had no succession plan in place and essentially had to sell.”
As The ESOP Association President and CEO James Bonham stated, “Our nation faces the potential loss of literally millions of profitable businesses as record numbers of business owners approach retirement—and employee ownership and ESOPs are the perfect way to keep these businesses in operation.”
Goldstein concluded by asking the Small Business Committee and others in Congress to:
- Require the DOL to issue regulations on adequate consideration and other critical issues in forming and growing ESOPs. The ESOP community has waited 45 years for the agency to issue regulations.
- Task the Small Business Administration (SBA) with carrying out the mandates of the Main Street Employee Ownership Act, such as streamlining the ESOP loan process and working to promote employee ownership. This would include adding ESOP loans to the SBA’s Preferred Lending Program.
A bright spot from the hearing includes Small Business Committee Chair Nydia Velázquez (D-NY) concluding by stating, “Despite our work in the 115th Congress to address some of the obstacles to employee ownership, it is clear we still have more work to do and progress to achieve. And I hear you loud and clear on the Department of Labor—we’ll be dealing with that issue.”
As Goldstein said, ESOPs are “a life-changing shift for many people—one that all employees should be able to enjoy.”
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