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U.S. Sens. Gary Peters (D-MI) and Jim Risch (R-ID) recently introduced legislation to increase awareness of Employee Stock Ownership Plans (ESOPs) as an employee ownership model for businesses.

ESOPs are workplace benefit plans that allow employees to save for retirement while sharing in a business' profits by ensuring a majority of a business' holdings are owned by employees.

"Employee Stock Ownership Plans have been a proven success for businesses of all types, from manufacturing to agriculture," Peters said. "Research indicates that businesses with the Employee Stock Ownership Plan model are more productive, grow faster and have less employee turnover."

However, many business owners are not familiar with ESOPs. The Small Business Employee Ownership Promotion Enhancement Act will task the SCORE Association – a nonprofit outreach organization supported by the U.S. Small Business Administration (SBA) and comprised of volunteer business owners to deliver free small business services – with a new role in administering informational resources regarding ESOPs.

In addition, it would establish a position within SCORE to lead efforts to distribute information and general technical assistance that promotes or facilitates employee ownership business forms.

"SCORE has a nationwide reach that helps thousands of small businesses each year," Risch said. "I'm glad to introduce this legislation that would utilize SCORE's existing network of volunteers to educate entrepreneurs on the benefits of employee stock ownership plans, which I strongly support."

Currently, over 13.5 million employees in the United States participate in 7,000 ESOPs. Employees participating in ESOPs receive 5-12 percent more in wages and see retirement accounts that are 2.5 times larger than those of their peers.

"SCORE is pleased to support Senator Peters and Chairman Risch's bill to educate small business owners on the value of ESOPs as a potential exit strategy for entrepreneurs who are ready to take the next step in the life of their business," SCORE CEO Ken Yancey said. "Our volunteer mentors look forward to contributing their firsthand knowledge, gained through decades of business experience, to raise awareness of different exit strategies and models of employee ownership."

ESOPs are commonly formed when an owner of a privately-owned company departs the business, often for retirement. An ESOP can be an attractive option for those that want to keep a business' legacy in the hands of its loyal employees.

"ESOPs are the perfect transition solution for many successful closely held companies, benefiting both employees and owners," Corey Rose, Founder, National Center for Employee Ownership, said. "But despite their many tax, planning, and legacy benefits, few owners know that this is even a possibility. The outreach program proposed in this bill would be a very cost-effective way to address this issue. It's very encouraging that Senators Peters and Risch are taking the lead in promoting the ESOP model for businesses and employees."


As seen in Financial Regulation News.