Sec. 2. Findings

303 words·~1 min read·/bill/119/s/1727/is/section-2

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Congress finds as follows: While Congress permitted the creation of employee stock ownership plans (ESOPs) in the Employee Retirement Income Security Act of 1974, these plans are not just a retirement plan for their participants. The legislative history of ESOPs indicate that ESOPs were intended to help the economy at a time when bank financing was difficult for companies to obtain, with the Joint Committee on Taxation categorizing the ESOP provisions of the Tax Reform Act of 1984 as Incentives for Investment and Continued Economic Growth .

ESOPs empower workers to gain ownership of their enterprise, thereby aligning the incentives for owners and workers and affording workers an economic stake in the company’s success. ESOPs serve as a mechanism of finance whereby workers who otherwise would not have the means can acquire the businesses where they work. ESOP employees who run successful, profitable companies are often unable to make full use of their defined contribution plans as a result of their company’s success accruing to their ESOP balance, thereby causing their other plan contributions to exceed the annual cap.

Unlike defined contribution plans where the amount contributed is determined by the employee, ESOP contributions reflect growth in the company and its value rather than planned contributions by the employee or employer. This is why the vast majority of ESOPs also sponsor a defined contribution plan, such as a qualified cash or deferred arrangement under section 401(k) of the Internal Revenue Code of 1986, which facilitates the diversification of workers’ retirement savings. Sections 404 and 415 of the Internal Revenue Code impose limits on benefits and contributions under qualified retirement plans.

These limits impede the ability for ESOP employees to diversify their retirement savings and make their own retirement savings contributions and often require their employers to deny matching contributions they would otherwise receive.