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S. 1788: Worker Owned Wealth Act

The text of the bill below is as of Sep 11, 2017 (Introduced).

II

115th CONGRESS

1st Session

S. 1788

IN THE SENATE OF THE UNITED STATES

September 11, 2017

(for herself and Mrs. Gillibrand) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To encourage companies to expand employee ownership, and for other purposes.

1.

Short title

This Act may be cited as the Worker Owned Wealth Act.

2.

Definition

In this Act, the term ESOP means an employee stock ownership plan, as defined in section 4975(e)(7) of the Internal Revenue Code of 1986.

3.

Employee Ownership Revolving Loan funds

(a)

In general

The Secretary of the Treasury shall establish in each field office in the Department of the Treasury an Employee Ownership Revolving Loan Fund that makes—

(1)

low-interest loans to business owners seeking to establish employee ownership in the business; and

(2)

loan guarantees to private lenders who make loans to ESOPs.

(b)

Staff

(1)

In general

The Secretary of the Treasury may, without regard to the civil service laws (including regulations), appoint and terminate such personnel as may be necessary to enable the Secretary to carry out this section.

(2)

Compensation

The Secretary of the Treasury may fix the compensation of personnel without regard to chapter 51 and subchapter III of chapter 53 of title 5, United States Code, relating to classification of positions and General Schedule pay rates, except that the rate of pay for personnel may not exceed the rate payable for level V of the Executive Schedule under section 5316 of that title.

(c)

Authorization of appropriations

There is authorized to be appropriated $1,000,000,000 to carry out this section.

4.

Exclusion of interest on loans used to acquire employer securities for employee stock ownership plans

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 132 the following new section:

133.

Interest on certain loans used to acquire employer securities

(a)

Allowance of exclusion

(1)

In general

Except as provided in paragraph (2), gross income does not include the applicable percentage of the interest received by—

(A)

a bank (within the meaning of section 581),

(B)

an insurance company to which subchapter L applies,

(C)

a corporation actively engaged in the business of lending money, or

(D)

a regulated investment company (as defined in section 851),

with respect to a securities acquisition loan.
(2)

Annual limitation

The aggregate amount of interest which may be excluded by a taxpayer under paragraph (1) for any taxable year shall not exceed $20,000,000.

(3)

Applicable percentage

For purposes of this section—

(A)

In general

Except as provided in subparagraph (B), the applicable percentage of a taxpayer with respect to any securities acquisition loan is 50 percent.

(B)

Lower percentages for larger financial institutions

If, for any taxable year in which a taxpayer enters into a securities acquisition loan—

(i)

the average adjusted bases of all assets of the taxpayer are equal to or greater than $2,000,000,000 but less than or equal to $10,000,000,000, the taxpayer's applicable percentage with respect to interest received by the taxpayer on such loan (including any refinancing of such loan treated as a securities acquisition loan) for such taxable year and any succeeding taxable year shall be 25 percent, and

(ii)

the average adjusted bases of all assets of the taxpayer are greater than $10,000,000,000, the taxpayer's applicable percentage with respect to interest received by the taxpayer on such loan (including any refinancing of such loan treated as a securities acquisition loan) for such taxable year and any succeeding taxable year shall be 10 percent.

(4)

Controlled group of corporations

All members of a controlled group of corporations (as defined in section 409(l)(4)) shall be treated as 1 taxpayer for purposes of applying paragraphs (2) and (3).

(b)

Securities acquisition loan

(1)

In general

For purposes of this section, the term securities acquisition loan means—

(A)

any loan to a corporation or to an employee stock ownership plan to the extent that the proceeds are used to acquire employer securities for the plan, or

(B)

any loan to a corporation to the extent that, within 30 days, employer securities are transferred to the plan in an amount equal to the proceeds of such loan and such securities are allocable to accounts of plan participants within 1 year of the date of such loan.

For purposes of this paragraph, the term employer securities has the meaning given such term by section 409(l). The term securities acquisition loan shall not include a loan with a term greater than 15 years, except that in the case of a securities acquisition loan which is a refinancing loan described in paragraph (5), such term may not extend beyond the last day of the original securities acquisition loan which such loan is refinancing.
(2)

Loans between related persons

The term securities acquisition loan shall not include—

(A)

any loan made between corporations which are members of the same controlled group of corporations, or

(B)

any loan made between an employee stock ownership plan and any person that is—

(i)

the employer of any employees who are covered by the plan, or

(ii)

a member of a controlled group of corporations which includes such employer.

For purposes of this paragraph, subparagraphs (A) and (B) shall not apply to any loan which, but for such subparagraphs, would be a securities acquisition loan if such loan was not originated by the employer of any employees who are covered by the plan or by any member of the controlled group of corporations which includes such employer, except that this section shall not apply to any interest received on such loan during such time as such loan is held by such employer (or any member of such controlled group).
(3)

Terms applicable to certain securities acquisition loans

A loan to a corporation shall not fail to be treated as a securities acquisition loan merely because the proceeds of such loan are lent to an employee stock ownership plan sponsored by such corporation (or by any member of the controlled group of corporations which includes such corporation) if such loan includes—

(A)

repayment terms which are substantially similar to the terms of the loan of such corporation from a lender described in subsection (a), or

(B)

repayment terms providing for more rapid repayment of principal or interest on such loan, but only if allocations under the plan attributable to such repayment do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)).

(4)

Controlled group of corporations

For purposes of this subsection, the term controlled group of corporations has the meaning given such term by section 409(l)(4).

(5)

Treatment of refinancings

The term securities acquisition loan shall include any loan which—

(A)

is (or is part of a series of loans) used to refinance a loan described in subparagraph (A) or (B) of paragraph (1), and

(B)

meets the requirements of paragraphs (2) and (3).

(6)

Plan requirements

(A)

In general

A loan shall not be treated as a securities acquisition loan for purposes of this section unless, immediately after the acquisition or transfer referred to in subparagraph (A) or (B) of paragraph (1), respectively, the employee stock ownership plan meets the requirements of subparagraphs (B) and (C).

(B)

Plan must hold more than 5 percent of stock after acquisition or transfer

An employee stock ownership plan meets the requirements of this subparagraph if the plan owns more than 5 percent of—

(i)

each class of outstanding stock of the corporation issuing the employer securities, or

(ii)

the total value of all outstanding stock of the corporation.

(C)

Plan must cover at least 50 percent of nonhighly compensated employees

(i)

In general

An employee stock ownership plan meets the requirements of this subparagraph if at least 50 percent of the employees of each employer maintaining the plan who are not highly compensated employees (as defined in section 414(q)) are participants in the plan.

(ii)

Certain employees may be excluded

For purposes of clause (i), an employer may elect to exclude under the plan employees—

(I)

who have not attained the age of 21 before the close of a plan year,

(II)

who have less than 1 year of service with the employer as of any day during the plan year,

(III)

who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement if there is evidence that the benefits covered under the employee stock ownership plan were the subject of good faith bargaining between employee representatives and the employer, or

(IV)

who are described in section 410(b)(3)(C) (relating to nonresident aliens working outside the United States).

(D)

Failure to meet requirements

(i)

In general

Subsection (a) shall not apply to any interest received with respect to a securities acquisition loan which is allocable to any period during which the employee stock ownership plan does not meet the requirements of subparagraphs (B) and (C).

(ii)

Exception

To the extent provided by the Secretary, clause (i) shall not apply to any period if, within 90 days of the first date on which the failure occurred (or such longer period not in excess of 180 days as the Secretary may prescribe), the plan takes such actions as are required to meet the requirements of subparagraphs (B) and (C).

(E)

Stock

For purposes of subparagraph (B)—

(i)

In general

The term stock means stock other than stock described in section 1504(a)(4).

(ii)

Treatment of certain rights

The Secretary may provide that warrants, options, contracts to acquire stock, convertible debt interests and other similar interests be treated as stock for 1 or more purposes under subparagraph (B).

(F)

Aggregation rule

For purposes of determining whether the requirements of subparagraph (B) are met, an employee stock ownership plan shall be treated as owning stock in the corporation issuing the employer securities which is held by any other employee stock ownership plan which is maintained—

(i)

the employer maintaining the plan, or

(ii)

any member of a controlled group of corporations (within the meaning of section 409(l)(4)) of which the employer described in clause (i) is a member.

(7)

Voting rights of employer securities

A loan shall not be treated as a securities acquisition loan for purposes of this section unless—

(A)

the employee stock ownership plan meets the requirements of section 409(e)(2) with respect to all employer securities acquired by, or transferred to, the plan in connection with such loan (without regard to whether or not the employer has a registration-type class of securities), and

(B)

no stock described in section 409(l)(3) is acquired by, or transferred to, the plan in connection with such loan unless—

(i)

such stock has voting rights equivalent to the stock to which it may be converted, and

(ii)

the requirements of subparagraph (A) are met with respect to such voting rights.

(c)

Employee stock ownership plan

(1)

In general

For purposes of this section, the term employee stock ownership plan has the meaning given to such term by section 4975(e)(7).

(2)

Eligible worker-owned cooperatives included

For purposes of this section and sections 4978B, 6042, and 7872, such term shall also include an eligible worker-owned cooperative (as defined in section 1042(c)).

(d)

Application with section 483 and original issue discount rules

In applying section 483 and subpart A of part V of subchapter P to any obligation to which this section applies, appropriate adjustments shall be made to the applicable Federal rate to take into account the exclusion under subsection (a).

(e)

Period to which interest exclusion applies

(1)

In general

In the case of—

(A)

an original securities acquisition loan, and

(B)

any securities acquisition loan (or series of such loans) used to refinance the original securities acquisition loan,

subsection (a) shall apply only to interest accruing during the excludable period with respect to the original securities acquisition loan.
(2)

Excludable period

For purposes of this subsection, the term excludable period means, with respect to any original securities acquisition loan—

(A)

In general

The 7-year period beginning on the date of such loan.

(B)

Loans described in subsection (b)(1)(A)

If the term of an original securities acquisition loan described in subsection (b)(1)(A) is greater than 7 years, the term of such loan. This subparagraph shall not apply to a loan described in subsection (b)(3)(B).

(3)

Original securities acquisition loan

For the purposes of this subsection, the term original securities acquisition loan means a securities acquisition loan described in subparagraph (A) or (B) of subsection (b)(1).

.

(b)

Conforming amendments

(1)

Subparagraph (B) of section 291(e)(1) of the Internal Revenue Code of 1986 is amended by redesignating clause (iv) as clause (v) and by inserting after clause (iii) the following new clause:

(iv)

Special rules for obligations to which section 133 applies

In the case of an obligation to which section 133 applies, interest on such obligation shall not be treated as exempt from taxation for purposes of this subparagraph.

.

(2)

Section 812 of such Code is amended by adding at the end the following:

(g)

Treatment of Interest Partially Tax-Exempt Under Section 133

For purposes of this section and subsections (a) and (b) of section 807, the terms gross investment income and tax-exempt interest shall not include any interest received with respect to a securities acquisition loan (as defined in section 133(b)). Such interest shall not be included in life insurance gross income for purposes of subsection (b)(3).

.

(3)

Paragraph (5) of section 852(b) of such Code is amended by adding at the end the following:

(C)

Interest on certain loans used to acquire employer securities

For purposes of this section—

(i)

the applicable percentage (as defined in section 133(a)(3)) of the amount of any loan held by a regulated investment company which qualifies as a securities acquisition loan (as defined in section 133) shall be treated as an obligation described in section 103(a), and

(ii)

such applicable percentage of the interest received on such loan shall be treated as interest excludable from gross income under section 103.

.

(4)

Paragraph (2) of section 4978(b) of such Code is amended by striking subparagraphs (A) and (B) and all that follows and inserting:

(A)

first, from section 133 securities (as defined in section 4978B(e)(2)) acquired during the 3-year period ending on the date of such disposition, beginning with the securities first so acquired,

(B)

second, from section 133 securities (as so defined) acquired before such 3-year period unless such securities (or proceeds from the disposition) have been allocated to accounts of participants or beneficiaries,

(C)

third, from qualified securities to which section 1042 applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and

(D)

then from any other employer securities.

If subsection (d) or section 4978B(d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.

.

(5)
(A)

Chapter 43 of such Code is amended by inserting before section 4979 the following new section:

4978B.

Tax on disposition of employer securities to which section 133 applied

(a)

Imposition of tax

In the case of an employee stock ownership plan which has acquired section 133 securities, there is hereby imposed a tax on each taxable event in an amount equal to the amount determined under subsection (b).

(b)

Amount of tax

(1)

In general

The amount of the tax imposed by subsection (a) shall be equal to 10 percent of the amount realized on the disposition to the extent allocable to section 133 securities under section 4978(b)(2).

(2)

Dispositions other than sales or exchanges

For purposes of paragraph (1), in the case of a disposition of employer securities which is not a sale or exchange, the amount realized on such disposition shall be the fair market value of such securities at the time of disposition.

(c)

Taxable event

For purposes of this section, the term taxable event means any of the following dispositions:

(1)

Dispositions within 3 years

Any disposition of any employer securities by an employee stock ownership plan within 3 years after such plan acquired section 133 securities if—

(A)

the total number of employer securities held by such plan after such disposition is less than the total number of employer securities held after such acquisition, or

(B)

except to the extent provided in regulations, the value of employer securities held by such plan after the disposition is 50 percent or less of the total value of all employer securities as of the time of the disposition.

For purposes of subparagraph (B), the aggregation rule of section 133(b)(6)(D) shall apply.
(2)

Stock disposed of before allocation

Any disposition of section 133 securities to which paragraph (1) does not apply if—

(A)

such disposition occurs before such securities are allocated to accounts of participants or their beneficiaries, and

(B)

the proceeds from such disposition are not so allocated.

(d)

Section not To apply to certain dispositions

(1)

In general

This section shall not apply to any disposition described in paragraph (1), (3), or (4) of section 4978(d).

(2)

Certain reorganizations

For purposes of this section, any exchange of section 133 securities for employer securities of another corporation in any reorganization described in section 368(a)(1) shall not be treated as a disposition, but the employer securities received shall be treated as section 133 securities and as having been held by the plan during the period the securities which were exchanged were held.

(3)

Forced disposition occurring by operation of state law

Any forced disposition of section 133 securities by an employee stock ownership plan occurring by operation of a State law shall not be treated as a disposition. This paragraph shall only apply to securities which, at the time the securities were acquired by the plan, were regularly traded on an established securities market.

(4)

Coordination with other taxes

This section shall not apply to any disposition which is subject to tax under section 4978 or section 4978A (as in effect on the day before its repeal).

(e)

Definitions and special rules

For purposes of this section—

(1)

Liability for payment of taxes

The tax imposed by this section shall be paid by the employer.

(2)

Section 133 securities

The term section 133 securities means employer securities acquired by an employee stock ownership plan in a transaction to which section 133 applied.

(3)

Disposition

The term disposition includes any distribution.

(4)

Ordering rules

For ordering rules for dispositions of employer securities, see section 4978(b)(2).

.

(B)

The table of sections for chapter 43 of such Code is amended by inserting before the item relating to section 4979 the following new item:

Sec. 4978B. Tax on disposition of employer securities to which section 133 applied.

.

(6)

Subsection (e) of section 6047 of such Code is amended by striking paragraphs (1) and (2) and inserting the following new paragraphs:

(1)

any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan—

(A)

which acquired stock in a transaction to which section 133 applies, or

(B)

which holds stock with respect to which section 404(k) applies to dividends paid on such stock,

(2)

any person making or holding a loan to which section 133 applies, or

(3)

both such employer or plan administrator and such person,

.

(7)

Subsection (f) of section 7872 of such Code is amended by adding at the end the following new paragraph:

(12)

Special rule for certain employer security loans

This section shall not apply to any loan between a corporation (or any member of the controlled group of corporations which includes such corporation) and an employee stock ownership plan described in section 4975(e)(7) to the extent that the interest rate on such loan is equal to the interest rate paid on a related securities acquisition loan (as described in section 133(b)) to such corporation.

.

(8)

The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 132 the following new item:

Sec. 133. Interest on certain loans used to acquire employer securities.

.

(c)

Effective date

The amendments made by this section shall apply to original securities acquisition loans (as defined in section 133(e)(3) of the Internal Revenue Code of 1986 (and loans refinancing such loans)) made after the date of the enactment of this Act.

5.

Employee stock ownership requirements for use of performance exception to limitation of deductibility of executive compensation; expansion of publicly held corporation definition

(a)

Limitation on use of performance exception

(1)

In general

Section 162(m) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(7)

Employee stock ownership requirements for use of performance exception

(A)

In general

The exception under paragraph (4)(C) shall not apply to any remuneration payable by a publicly held corporation for any taxable year unless the corporation has in effect at all times during the year a qualified employee stock program.

(B)

Qualified employee stock program

For purposes of this paragraph, the term qualified employee stock program means, with respect to any corporation, a program of the corporation under which—

(i)

employees of the corporation other than highly compensated employees (within the meaning of section 414(q)) hold nonforfeitable rights to at least 5 percent of—

(I)

either each class of outstanding stock of the corporation issuing the employer securities or the total value of all outstanding stock of the corporation, and

(II)

the voting rights of the total outstanding voting shares of stock of the corporation,

(ii)

any stock (or any right with respect to such stock) taken into account with respect to an employee under clause (i) is provided to the employee as an employer contribution and at no cost to the employee, and

(iii)

the providing of such stock or right by the corporation is not in lieu of any other remuneration payable to such employee.

If a program includes the granting at no cost to employees of stock options under which employees may purchase stock through the exercise of the options, the cost to the employee of such purchase shall not be taken into account in determining whether the program meets the requirements of clause (ii).
(C)

Failure to retain minimum stock interest

(i)

In general

Notwithstanding subparagraph (A), paragraph (4)(C) shall not apply to any remuneration payable by a corporation with a qualified employee stock program during any period employees do not own stock meeting the requirements of subparagraph (B)(i).

(ii)

Exception

To the extent provided by the Secretary, clause (i) shall not apply to any period if, within 90 days of the first date on which the failure occurred (or such longer period not in excess of 180 days as the Secretary may prescribe), the employees are given stock which results in the program meeting the requirements of subparagraph (B)(i).

(D)

Stock

For purposes of this paragraph—

(i)

In general

The term stock means stock other than stock described in section 1504(a)(4).

(ii)

Treatment of certain rights

The Secretary may provide that warrants, options, contracts to acquire stock, convertible debt interests and other similar interests be treated as stock for 1 or more purposes under subparagraph (A).

(E)

Aggregation rule

For purposes of determining whether the stock ownership requirements of subparagraph (B)(i) are met, a controlled group of corporations (within the meaning of section 409(l)(4)) may elect to treat all members of the group as 1 corporation.

(F)

Exception for existing binding contracts

This paragraph shall not apply to any remuneration payable under a written binding contract which was in effect on April 1, 2017, and which was not modified thereafter in any material respect before such remuneration is paid.

.

(2)

Conforming amendment

Subparagraph (C) of section 162(m)(4) of such Code is amended by striking The term and inserting Subject to paragraph (7), the term.

(b)

Definition of publicly held corporation

Paragraph (2) of section 162(m) is amended to read as follows:

(2)

Publicly held corporation

For purposes of this subsection, the term publicly held corporation means any corporation which—

(A)

qualifies as an issuer the securities of which are registered under section 12 of the Securities Exchange Act of 1934, or

(B)

is required to file reports under section 15(d) of such Act.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

6.

Office of Employee Ownership and Worker Empowerment

(a)

Establishment

There is established within the National Economic Council the Office of Employee Ownership and Worker Empowerment.

(b)

Duties

The Office of Employee Ownership and Worker Empowerment established under subsection (a) shall—

(1)

provide educational and technical assistance at no cost to small businesses, as defined by the Administrator of the Small Business Administration, that are attempting to establish employee ownership;

(2)

raise awareness of profit sharing to companies and employees, including ESOPs; and

(3)

not later than 180 days after the date of enactment of this Act, submit to Congress a report on any barriers to employee ownership in companies.

(c)

Staff

(1)

In general

The Director of the National Economic Council may, without regard to the civil service laws (including regulations), appoint and terminate such personnel as may be necessary to enable the Office of Employee Ownership and Worker Empowerment to carry out this section.

(2)

Compensation

The Director of the National Economic Council may fix the compensation of personnel without regard to chapter 51 and subchapter III of chapter 53 of title 5, United States Code, relating to classification of positions and General Schedule pay rates, except that the rate of pay for personnel may not exceed the rate payable for level V of the Executive Schedule under section 5316 of that title.