Hawkeye Reporter

An Employee Stock Ownership Plan (ESOP) is a retirement plan that allows business owners to sell shares of their company to employees, offering tax advantages. According to U.S. Sen. Chuck Grassley (R-Iowa), ESOPs are particularly useful for family-run small businesses looking for succession planning options and help maintain local ownership. Grassley noted that employee ownership can lead to increased productivity, higher returns as the value of shares grows, and greater workforce loyalty.

Grassley said he frequently hears from Iowans at his annual 99 county meetings about the positive impact of ESOPs on morale and community pride. He added that owners appreciate seeing their businesses continue in local hands, which supports the local tax base, school enrollment, economic health, and social capital.

Many Iowa family-owned businesses are expected to change ownership in the coming years, raising concerns about continuity for communities that rely on these enterprises. Workforce shortages and employee retention are ongoing issues discussed during Grassley's county visits.

To address these challenges, Grassley has cosponsored bipartisan legislation known as the Promotion and Expansion of Private Employee Ownership Act. "As a former chairman of the tax-writing Senate Finance Committee, I understand the federal tax code serves as a vehicle to foster economic growth, influence business decisions and consumer behaviors and grow retirement savings," Grassley stated.

He explained: "In July, I joined a bipartisan bill called the Promotion and Expansion of Private Employee Ownership Act to simplify the route for small businesses to set up ESOPs. It would eliminate barriers that too many businesses face to establish a stock ownership plan for their employees. The complexity of the tax code and burdensome requirements should not stand in the way of an aging generation of business owners from allowing their workers to gain ownership while they gain an offramp to pass on their business and achieve financial security in retirement."

The bill aims to improve incentives for S corporation owners—businesses where income passes through directly to individual owners rather than being taxed at the corporate level—to establish ESOPs. More than half of small firms in America operate as S corporations. The proposed legislation would offer technical assistance for forming ESOPs, ensure companies keep Small Business Administration certification, reinforce ESOP structures within federal law, and create an Employee Ownership Advocate at the Department of Labor.

Grassley emphasized: "Simply put, the federal tax code should not stand in the way of small, family-owned businesses from setting up ESOPs for their employees." He also mentioned speaking at last year's Iowa CEO Employee Ownership Conference in Ankeny and reiterated his commitment to supporting small businesses throughout Iowa.