August 09, 2024

Wyden, Senators Call for a National Framework Promoting Employee Stock Ownership Plans

Washington, D.C. — U.S. Senator Ron Wyden, D-Ore., said today he has joined a bipartisan letter calling on the U.S. Department of Labor (DOL) to complete a final regulation governing employee stock ownership plans (ESOPs), which would provide the clarity needed to promote them nationwide.

“Employee ownership, and specifically ESOPs, is a proven way to benefit businesses, workers, and local economies,” the senators wrote. “Studies confirm that employee-owned firms experience stronger overall business performance and resilience during economic downturns. Employee owners at these firms see greater wealth-building opportunities and increased job security and satisfaction compared to their counterparts at conventional businesses. Employee ownership can also be a powerful wealth-building opportunity for traditionally disadvantaged workers.”

Congress passed the Employee Retirement Income Security Act (ERISA) in 1974, allowing ESOPs to buy employer stock using funds borrowed from a sponsoring company. ESOPs can only buy employer stock if they satisfy an exemption rule based on “adequate consideration.” While Congress initially created “adequate consideration” exemption to provide ESOPs with guidance and regulate the value of complex assets such as employer stocks, the DOL has yet to provide a clear regulatory framework on how ESOPs could satisfy this exemption rule of “adequate consideration.”

“Given the success that ESOPs have seen without clear guidance, one can only imagine how successful they would be if there was a regulatory framework in place that could be used to satisfy the adequate consideration exemption. For these reasons, we respectfully believe the Department should prioritize the approach outlined above to complete a final regulation that encourages ESOP formation,” the senators concluded.

This letter was led by U.S. Senators Roger Marshall, R-Kan., and Tim Kaine, D-Va., and was also signed by U.S. Senators Marco Rubio, R-Fla., Mazie Hirono, D-Hawai’i, Jeanne Shaheen, D-N.H., Chris Van Hollen, D-Md., and Brian Schatz, D-Hawai’i.

The full letter is here.