Bipartisan Retirement Wealth Bill Could Make Employee Ownership Easier for Workers

Saving for retirement usually means contributing to a 401(k) or IRA and hoping investments rise over time. A bipartisan bill headed to President Donald Trump's desk, however, could help more Americans build wealth in a different way: by owning a share of the company they work for.

The Retire through Ownership Act is designed to expand access to employee stock ownership plans, or ESOPs, which let workers accumulate company shares as a retirement benefit. The measure does not guarantee extra money, but it could give some employees another path toward retirement security.

The Retire Through Ownership Act won overwhelming House approval

The House approved the Retire Through Ownership Act by a 401-14 vote, with 191 Republicans, one Independent and 209 Democrats backing the legislation.

The Senate had already passed the bill, which was introduced by Sens. Tim Kaine, D-Va., and Roger Marshall, R-Kan. It has now cleared Congress and been sent to President Donald Trump for action.

Kaine said ESOPs help workers earn more, build retirement savings and feel more connected to the companies they work for. Marshall said employee ownership can strengthen retirement security for working families and argued the bill would provide the certainty needed to expand it.

The legislation does not create a new retirement account or require employers to hand out company stock. Instead, it changes the rules surrounding existing employee stock ownership plans.

How an ESOP works

An ESOP is a retirement plan that gives employees an ownership stake in their employer. Unlike a 401(k), where workers generally contribute part of each paycheck and choose how to invest it, ESOP shares are usually paid for by the company.

Shares are assigned to workers' accounts under the plan's rules and become fully theirs through vesting, either right away or over time. When employees retire or leave, they may be able to receive the value of their vested shares.

An ESOP can also operate alongside a 401(k), giving workers another source of retirement wealth rather than replacing the savings they already have.

The bill aims to make ESOPs easier to set up

The measure addresses a technical issue that can affect whether a company decides to create an ESOP: how privately held shares are valued.

Because private companies do not have a continuously updated stock price, ESOPs depend on independent appraisals when employer stock is bought. The bill would give fiduciaries more certainty by allowing them to rely in good faith on valuations that follow established IRS guidance.

Supporters say that added clarity could encourage more companies to consider employee ownership. Even so, the bill would not remove fiduciaries' duty to act in workers' interests or allow plans to pay any price they choose for company shares.

Employee ownership could add another source of retirement savings

For workers, the possible advantage is another way to build retirement assets without necessarily putting more of their own pay into the plan.

For example, if an employer contributed $3,000 worth of company shares to an ESOP account each year, that would amount to $60,000 over 20 years before any change in the value of those shares.

If the company grows, the stake could become more valuable. That may be especially helpful for someone already contributing to a 401(k), since retirement wealth would then come not only from personal savings, investment returns and an employer match, but also from company ownership.

Still, the legislation does not promise those results. Employers would continue to decide whether to offer an ESOP and how the plan is structured.

Company stock also brings risk

Owning stock in your employer can help build wealth, but it also creates a risk that does not exist when retirement savings are spread across many companies.

If the business runs into trouble, its shares could fall in value. In a serious downturn, workers could face job uncertainty at the same time their ESOP balance is dropping. For that reason, an ESOP should not be seen as a substitute for a diversified retirement portfolio.

If an employer offers both an ESOP and a 401(k), the 401(k) can still provide a way to spread savings across stocks, bonds and funds rather than tying too much retirement money to one company.

What it could mean for your retirement

The legislation would not suddenly place company shares into every retirement account. For people already in an ESOP, the main effect would be changes to the rules the plan follows when valuing employer stock.

The larger long-term effect could come if clearer rules encourage more privately held companies to create employee ownership plans.

If your employer offers an ESOP, it is worth checking the vesting schedule, how shares are valued and what happens when you leave or retire. It also helps to compare the plan with your 401(k), employer match and other workplace benefits so you know how each piece fits into your retirement strategy.

The bottom line

The Retire through Ownership Act passed the House with broad bipartisan support after already clearing the Senate. It is intended to make ESOPs easier to operate by providing clearer guidance on valuing privately held company shares.

The bill would not automatically increase workers' retirement savings or require employers to offer employee ownership. But if it persuades more companies to adopt ESOPs, workers could eventually gain another source of workplace wealth alongside a 401(k) as they work toward retirement.