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Local Communities Benefit from ESOPs

Jerry Ripperger Photo

By Jerry Ripperger, Director-Consulting at the Principal Financial Group®

When people think of Employee Stock Ownership Plans (ESOPs) terms like succession planning, diversification, or retirement readiness typically come to mind. Increasingly, economic development is being added to that list.

The most recent legislative sessions across the United States saw several bills relating to ESOPs introduced. Bills were introduced in both New Jersey and Massachusetts to encourage the formation of the plans. Although neither of these bills were ultimately signed into law, the heightened focus on ESOPs may very well pay dividends down the road.

Two other states did enact legislation. Nebraska amended their tax code to allow for more favorable tax treatment for ESOP participants in certain circumstances. Although not necessarily an inducement to form more ESOPs directly, it makes them more attractive to some participants providing indirect incentive.

But it is Iowa that has perhaps made the most progress during their last two legislative sessions encouraging the establishment of employee stock ownership plans. Specifically:

  • Allows a business owner that sells at least thirty percent of the company to an ESOP to exclude half of the capital gains from Iowa capital gains tax
  • Establishes a fund, administered by the Iowa Economic Development Authority (IEDA), to help an owner determine if selling to an ESOP is an appropriate strategy

Combined, these two changes are a powerful incentive to evaluate an ESOP. The ESOP offers many benefits to the company, the owner, and the participants. Iowa has recognized that it also offers significant benefits to the state.[1]

ESOPs are more likely to stay and grow in their local communities. This is vitally important as it is becoming increasingly common for states and communities to spend significant sums of money to attract and retain jobs.

A recent opinion article in the Corridor Business Journal highlights these economic development advantages.

In Iowa there were many groups promoting the benefits of the legislation. Probably none were as powerful as those of the employee owners of ESOPs. As you meet with state and local officials share your stories – they matter and they are listening. View this overview of states taking action today.

[1]
http://employeeownership.blogspot.com/2012/01/governor-of-iowa-discusses-how-employee.html#!/2012/01/governor-of-iowa-discusses-how-employee.html

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group (The Principal®), Des Moines, IA 50392.

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