House advances bill to promote Employee Stock Ownership Plans

The Pennsylvania House of Representatives recently advanced legislation that would provide incentives for Pennsylvania businesses to participate in Employee Stock Ownership Plans (ESOPs).

House Bill 285, sponsored by Representative Daryl Metcalfe (R-Butler), would apply certain provisions of the federal tax code at the state level and allow certain business owners who sell their stock to an ESOP to indefinitely defer and potentially eliminate the capital gains taxes typically collected at the sale of the business. These measures would bring Pennsylvania into line with 48 other states, according to Metcalfe.

“ESOPs serve the dual purpose of delivering real retirement savings and stock ownership for employees, as well as the potential of a tax-free exit strategy to keep businesses in Pennsylvania,” Metcalfe said. “Additionally, employees contribute absolutely nothing out of pocket or paycheck for this outstanding benefit. The purpose of my legislation is to increase the incentive for family-owned businesses and other employers to sell their business to an ESOP rather than outsiders whose intentions are unknown.”

According to the National Center for Employee Ownership, ESOP-owned companies are 25 percent more likely to stay in business, and ESOP employees have 2.5 percent higher retirement account balances and earn 5 percent to 12 percent more in wages.

There are approximately 300 ESOP companies in Pennsylvania and roughly 6,000 ESOP companies nationwide.

House Bill 285 now heads to the Senate for consideration.