ESOPs like what they’re hearing in Trump 2.0
TAKING STOCK: Proponents of expanding a corporate set-up that allows workers to accrue ownership stakes in companies are bullish on the Trump administration clearing regulatory hurdles they believe have hindered their growth for years.
Labor Secretary Lori Chavez-DeRemer gave a speech in Washington last month praising the “transformative power” of Employee Stock Ownership Plans and vowed to ensure that the department would do more to foster “rather than discourage them.”
“I understand how poor regulation and misguided agency agendas can directly impact business success, so it’s my mission to support you, not regulate you into oblivion,” she said.
ESOP advocates have long distrusted DOL’s Employee Benefits Security Administration, which regulates these programs as well as other retirement offerings. They contend that in their zeal to protect workers from being ripped off and saddled with overpriced shares, the agency makes it overly cumbersome to set up an ESOP and makes investment advisers fearful of litigation.
“Fiduciaries are taking so many prophylactic steps that they’re literally withering ESOPs on the vine,” said James Bonham, president of the ESOP Association, the group that held the event where Chavez-DeRemer spoke. “[There are] millions American workers who will never have the opportunity to have an ESOP benefit because of EBSA.”
President Donald Trump’s EBSA nominee, Daniel Aronowitz, vowed during his confirmation hearing earlier this month to “end the war on ESOPs” and said that DOL for years has been “nitpicking the professional judgement” of experts tasked with fairly valuing companies — an integral step of the process.
The industry wants the Trump administration to end an enforcement project at EBSA involving ESOPs that has been in place since 2005.
“There’s nothing special about it anymore, other than it allows them to go after ESOPs,” Bonham said.
They are also hopeful that the administration will propose an overhauled “adequate consideration rule” after taking issue with the version proposed at the tail end of President Joe Biden’s tenure as required by the SECURE 2.0 Act.
Industry members are also calling on EBSA to stop using “common-interest agreements,” in which the agency shares certain information with outside attorneys. Congressional Republicans have blasted the agreements as a way to circumvent discovery rules and allow private plaintiffs access to information they couldn’t otherwise access.
The Biden administration took steps to mend fences with ESOP advocates and foster worker-owned businesses, including by establishing an Employee Ownership Initiative within EBSA.
“I totally understand the concerns from the community that EBSA has historically been overly aggressive and discouraged people from pursuing ESOPs,” said Lisa Gomez, who led the office under Biden.
“We were making strides toward improving the relationship,” that’s now being overlooked, she added.
Gomez also warned that swinging too far in the other direction risks harming the reputation of ESOPs and making companies that offer them less desirable, if workers start to associate them with false promises.
“Some workers have heard bad stories, and are afraid of going to those companies,” she said.
As seen in Politico and written by Nick Niedzwiadnek.