Recent ESOP Trends, Studies, and Legislation
The August 15, 2012 Employee Ownership Update discusses a NCEO review of DOL filings that found that ESOP transactions, both in quantity and value, significantly dropped after 2008:
The NCEO used data from the U.S. Department of Labor (DOL) to estimate trends in the number of new ESOPs created from 2007 and 2011, as well as the average value of stock purchased per transaction. The number of ESOP transactions was close to flat from 2007 to 2008, but fell by approximately 40% in 2009 and remained at roughly the same level in 2010. The median value of company stock in the transactions reported in the DOL data was $1.4 million in 2007, and increased to nearly $2.0 million in 2008 before falling to $1.2 million in 2010. The average value of company stock was much higher (between $4.4 and $6.6 million, except for 2008 when the average value was $17.2 million), suggesting that some much larger transactions happened in 2008. The data is approximate, and only includes ESOPs that received company shares in the same year they were established.
The August 1, 2012 Employee Ownership Update shares some bipartisan legislative commentary resulting from a recent S Corporation ESOP Study that found that Jobs Grew by 60 Percent in S-ESOP Companies:
In response to the report, Ron Kind (D-Wis.) and Erik Paulsen (R-Minn.) of the House Ways and Means Committee wrote, "It's time to reach across the aisle, find the common ground that we know exists, and do everything we can to get our economy back on track and create the good paying jobs we need to sustain economic growth. By fostering highly productive companies, allowing employers to hire and retain employees, and then encouraging saving for sound retirement, the ESOP model can continue to help American workers and middle class families."
It also discussed Signed Iowa Law (HF 2465) that provides a Capital Gain Deduction for a Sale to an Iowa ESOP, noting that both C and S corporation Iowa companies are eligible but will have to choose between a Section 1042 election and the state election:
The governor of Iowa, Terry Branstad, recently signed into law a bill to encourage the creation of ESOPs. The effect of the provision is to create a 50% reduction of Iowa 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 provision apparently requires sellers to choose between the Iowa tax break and the Section 1042 federal tax incentive, which have significant differences. First, the Iowa legislation does not require the seller to buy qualified reinvestment property (QRP) with the proceeds of the sale. Secondly, the Iowa legislation does not distinguish between C and S corporations, while Section 1042 only applies to C corporations.