Pro-ESOP Bill Introduced in California - ERISA Legal Blogs Posted by Marc S. Schechter - Lawyers.com

Pro-ESOP Bill Introduced in California

A new bill was introduced in California on February 22, 2019, by Senator Scott Wilk (R). The bill, SB-553, would provide an incentive for some California businesses to adopt employee stock ownership plans, better known as ESOPs. Two major problems facing the United States today are the vast number of Americans with little to no retirement savings and the many owners of small- to medium-sized businesses with no succession plan in place for when they retire. The widespread adoption of an ESOP program may be a solution to both of these problems. Other states in the United States have recognized the potential benefits of ESOP adoption and have already put in place ESOP-friendly legislation. These states include Iowa, Missouri, and Colorado.

In order to promote the adoption of ESOPs, Iowa and Missouri have elected to introduce legislation that would allow for the exemption of up to 50% of the net income from taxation if a company is sold to an ESOP that owns at least 30% of the company. In addition, the Iowa legislation also allows the Iowa Economic Development Authority to provide up to $25,000 for the initial valuation of the business for a sale to an ESOP. In Colorado, recent legislation requires the engagement of local non-profits to provide employee ownership information to local businesses and sets up a revolving $10,000 loan to assist in the transition to employee ownership. California has not passed any ESOP-friendly legislation yet; however, with SB-553 under consideration, that may be about to change.

If SB-553 were to be made into law, California would not only be providing a much needed incentive for many California businesses to adopt ESOPs, but the state would also be signaling a willingness to cultivate an ESOP-friendly legislative atmosphere. In California, the State Contract Act governs state contracts for public works projects and generally requires that a contract be rewarded to the lowest responsible bidder. Under SB-553, an entity awarding a contract under this Act would be required to provide a 3% bid preference to a qualified ESOP-owned business bidder. For the purposes of SB-553, a qualified ESOP bidder is an 1) ESOP or 2) S corporation ESOP that is 100% owned and operated by employee owners. The passage of this legislation would constitute a much needed first step in California state law towards the promotion of ESOPs in the state, which can lead to increased worker productivity, higher rates of worker satisfaction, lower employee turnover, higher retirement savings, and the peace of mind for business owners that will come with the establishment of a succession plan.

If you have any questions about employee ownership and ESOPs for your California company, Butterfield Schechter LLP is here to help. We are San Diego County’s largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

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Marc S. Schechter

Licensed since 1984

Member at firm Butterfield Schechter LLP

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RECENT POSTS

  • Pro-ESOP Legislation Updates
    Posted on July 19, 2019
    Topic: ERISA

    Federal legislation and lawmakers at the state level are pushing forward legislation to foster the development of more Employee Stock Ownership Plans (ESOPs) and make it simpler for companies to transition to ESOP ownership. California lawmakers should support legislation in support of ESOPs to benefit workers and business owners alike. Research indicates that some of ... Read more

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  • Will CA Follow Colorado Governor’s Action in Expanding Employee Ownership?
    Posted on July 1, 2019
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Marc S. Schechter

Licensed since 1984

Member at firm Butterfield Schechter LLP

AWARDS

AV Preeminent

RECENT POSTS

  • Pro-ESOP Legislation Updates
    Posted on July 19, 2019
    Topic: ERISA

    Federal legislation and lawmakers at the state level are pushing forward legislation to foster the development of more Employee Stock Ownership Plans (ESOPs) and make it simpler for companies to transition to ESOP ownership. California lawmakers should support legislation in support of ESOPs to benefit workers and business owners alike. Research indicates that some of ... Read more

  • Innovation and Employee Ownership
    Posted on July 8, 2019
    Topic: ERISA

    Companies looking to innovate may invest in research and development or hire outside consultants for ideas. However, one source of innovation may come from a resource the business already has. Employees and workers may understand the industry as well as the strengths and weaknesses of the business better than a consultant who only gets a ... Read more

  • Will CA Follow Colorado Governor’s Action in Expanding Employee Ownership?
    Posted on July 1, 2019
    Topic: ERISA

    In April, Colorado’s governor Jared Polis signed an executive order to focus on expanding employee ownership in Colorado businesses. With more legislative activity to provide incentives and support for employee-ownership, including Employee Stock Ownership Plans (ESOPs), California’s politicians could take similar action to encourage ESOPs. Colorado Executive OrderThe executive order signed by the Colorado governor ... Read more