When the government gets it right: supporting ESOPs

By Jerry L. Ripperger / Guest Editorial

Sometimes the government gets it right. The recent Iowa legislative session saw significant debate, and compromise, to address issues such as property tax reform, education and healthcare.

In the midst of these big issues, there were measures that didn’t grab the headlines but are equally important to Iowans. One of these is a bill that is designed to protect and grow Iowa companies and jobs.

The bill encourages the use of Employee Stock Ownership Plans (ESOPs). ESOPs are qualified retirement plans that are invested primarily in the common stock of the sponsoring company. They allow a business owner to transition ownership of the company to their employees through a retirement plan. ESOPs give Iowa business owners a strategy for exiting the business without having to shut it down or sell to an out-of-state entity.

The new measure establishes a fund administered by the Iowa Economic Development Authority (IEDA) to help offset the costs of determining if an ESOP is an appropriate strategy for the business owner, the company and the employees. This fund builds on a law passed in 2012 that offers a 50 percent capital gains exclusion when at least 30 percent of the business is sold to an ESOP. Together, these two initiatives provide a significant incentive for business owners to consider ESOPs.

The state of Iowa knows it stands to benefit from this legislation because there are examples today of how ESOPs encourage companies to stay, and grow, in Iowa.

Van Meter, Inc., a Cedar Rapids-based supplier of electrical and mechanical equipment, is one such example. Van Meter became 100 percent employee-owned through its ESOP on July 1, 2005. Since that time the company has experienced significant growth and made substantial investments in Iowa. Specifically Van Meter has:

• Grown by over 8 percent annually (including during the economic downturn).

• Invested $42 million in new facilities and $9 million in new inventory in Sioux City, Cedar Rapids, Iowa City and Urbandale.

• Is currently building a new facility in Muscatine.

Business owners who are interested in learning more about the state incentives for ESOPs can contact the Iowa Economic Development Authority at (800) 245-4692.

ESOPs benefit business owners, companies, employees and the state of Iowa. Because the government got it right, Iowa is now a leader in encouraging employee ownership of companies.


Jerry L. Ripperger, QPFC, is director of consulting for retirement and investor services at the Principal Financial Group. Follow him on Twitter https://twitter.com/jlripperger.