You can read the full text of the proposed legislation here.
Mini-cast 93 Transcript
Announcer: Welcome to the ESOP Mini-cast, a great way to wrap up the week.
Bret Keisling: 00:14 Hello, my friends. Thank you for listening. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. Last week in Episode 92 of the Mini-cast, I discussed newly proposed federal legislation, "The Temporary Federal ESOP Program," and I'm very excited that this week I'm going to spend a few minutes talking about the legislation with our good friend, Jennifer Krieger at Weaver. Jennifer, how are you?
Jenn Krieger: 00:41 I'm doing great, Bret, how are you?
Bret Keisling: 00:44 I'm excellent as well. Thank you so much for coming back on the podcast. I think this is visit number six or seven for you, and I'm always delighted when you can come and share your expertise. So thank you so much.
Jenn Krieger: 00:55 It's a pleasure. Thanks for having me.
Bret Keisling: 00:57 There's excitement out of Washington DC. Last week Senator Ron Johnson of Wisconsin introduced "The Temporary Federal ESOP Program." I did discuss it on Episode 92 of the Mini-cast. And Jenn before we talk about just a couple of technical question marks as well, this is really exciting to have this legislation introduced, isn't it?
Jenn Krieger: 01:19 It is, it really is a great start in it helps support ESOPs and opens the door for a wider audience for ESOPs not only in the creation, but also in the extension of ESOPs too.
Bret Keisling: 01:34 And any time ESOPs and employee ownership are mentioned in Congress and there is legislation, then we and all of the advocates for employee ownership support that. So we're going to talk about some technical things that we'd like to see a little different or tightened up, but it doesn't change the fact that we are big fans of the legislation and grateful to Senator Johnson.
Bret Keisling: 01:55 So with that, Jenn, a couple of things, there was some language in there and we are going to have a copy of the proposed legislation, a link to it, on our show notes. But there's a process that's laid out for companies to apply for grants, and again, it's up to $20,000 per employee with $50,000 of costs. But there is a procedure that's set up and I wanted to read -- for those who are actually going to look at the Act it's [SEC. 2. GRANT PROGRAM. ] section (B)(2) [starting at line 24] -- and it says that "supporting documentation for the valuation of the business concern as determined for purposes of such agreement by an independent valuation expert, utilizing generally accepted valuation approaches (as determined by the Secretary of the Treasury), or by the trustee of the employee stock ownership trust, if such valuation is certified by such an independent valuation expert." Now Jenn, there's actually three or four things we're going to talk about in there so I wanted to read it so people would have the full text, but let's break that down into a couple of bite-sized bits if we will.
Bret Keisling: 03:02 First off, it says that in order to get the funding, they must provide certification that a valuation was done by an "independent valuation expert utilizing generally accepted valuation approaches." That's not a thing, is it Jenn - "generally accepted valuation approaches?"
Jenn Krieger: 03:22 Right, that's part of the problem here, Bret. The "generally accepted valuation approaches" hasn't actually been defined and I don't believe any guidance, and honestly we've been looking for guidance for years from the Secretary of Labor, on what is applicable in an ESOP form. And you'll have to remember I'm coming from the public accounting world where not only do we have generally accepted valuation procedures or principles that we follow within ESOP space, we have different sets of standards even across different valuation principles or I should say areas. So for example, you know, fair value might utilize a Black Scholes method for valuing warrants, whereas that is not a common or a generally accepted valuation approach within the ESOP space. So even with an ESOP there's different things that have been very commonly utilized, which may be deemed to be "generally accepted" that, you know, maybe open for interpretation.
Bret Keisling: 04:29 It's also kind of interesting you and I have taken note that it's the Secretary of Treasury that makes the determination which is also kind of surprising in ESOP world. Isn't it?
Jenn Krieger: 04:39 That's correct, but that's because it's typically the Secretary of Labor who is pushing out the litigation, which ultimately becomes the guidance that we utilize for ESOP valuation. So it would be helpful if the Secretary of the Treasury and the Secretary of Labor actually got together on this to help lay out what it truly means to have generally accepted valuation approaches and help define that together.
Bret Keisling: 05:06 So Jenn, the other thing that we had noticed is -- and it's kind of a two part -- if the trustee is involved in this process and such valuation is certified by an independent valuation expert. Well, and as a reminder, this applies to any company that either forms a new ESOP or increases the participant shares' value, so increases the amount of the ESOP. I don't think they can be done without valuations and they can't be done without trustees. So I'm a little troubled that the language seems to imply that trustees may or may not be involved, but it also calls for a certification by the valuation advisor and you and I haven't been able to figure out what that means, have we?
Jenn Krieger: 05:57 Right, we are not quite sure what the "certified" means. Is it someone who is certified to do valuations, such as someone who might be a American, an ASA, American Society of Appraisals member or someone like a CVA, Certified Valuation Analyst? Or is it simply some language that means that they are certifying that they did this under the ethical standards of which they are member of these valuation associations? And we're not sure how much of a liability that might create for the valuation expert themselves. So is it shifting a little bit of the role of the liability from trustee to valuation expert?
Bret Keisling: 06:45 And if it does shift that responsibility, presumably valuation advisers aren't going to take the shift of responsibility at no additional fee. You know, if there's liability or responsibility, it tends to be more expensive. So again, I suspect that if this bill were to make it through both houses of Congress and be defined that this will all be worked out in committee ahead of time.
Jenn Krieger: 07:12 The heart of the bill here is really to support and to expand ESOPs, which in turn helps create more wealth for lower and middle income earners, which I think would be counterproductive through having greater liabilities shift from the trustee to the valuation expert, because like you hinted that there would potentially be an increase in fees. And if it's going to increase the fees for the maintenance of an ESOP that would be probably pushing folks away or deterring folks from the actual creation or expansion of an ESOP.
Bret Keisling: 07:48 I think you're exactly right. And we certainly don't want legislation that appears designed to support and promote employee ownership inadvertently being a deterrent. So all of these things have to be worked through, but again, isn't it wonderful for us in the employee ownership field to have actual legislation that's been introduced. And I understand, by the way, that Senator Baldwin also of Wisconsin has now signed on as a co-sponsor. So it's just early in the stage, but it is certainly exciting to have something positive to talk about during these times.
Jenn Krieger: 08:24 Of course, I'm excited about it! I'm going to be tracking this as it continues to develop.
Bret Keisling: 08:30 Jenn, you're absolutely wonderful. I'm glad that you and Weaver are doing well during these very challenging times. I really appreciate anytime that you come on the podcast, but thanks for you know, it's kind of a fun episode or unique episode, cause it's like we really like the legislation, but we don't understand a lot about it! So I really appreciate your coming on and just helping us point out some of the things that we'll need further analysis and discussion as it works through process.
Jenn Krieger: 08:57 Thanks, Bret, always happy to be a guest. And I also hear that you just surpassed 50,000 total listeners last week. So congratulations to you, Bret!
Bret Keisling: 09:07 Jenn, thank you so much. We're coming up almost on three years and I'm very proud of the podcast and the friendships and relationships I've met. You know, certainly the podcast was a key to you and I being introduced, but we've had a lot of guests and to -- I just am a little bit taken away by the fact that we've had 50,000 listens. And then I go back to what I just said a minute ago, but there are 17 million current and past participants, ESOP participants, plus millions more on the co-ops, collectives. I'm just scratching the surface and frankly, all of us in EO are just scratching the surface. But thanks for being part of the first 50,000 listens and I'm looking forward to have you back before too long and help us reach the next 50.
Jenn Krieger: 09:54 Thanks Bret. Have a great night.
Bitsy McCann: 09:59 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email firstname.lastname@example.org, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling, and I'm Bitsy McCann.
Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.
A note on the transcript: This transcript was produced by Temi, an automated transcription service. While it has been reviewed by The ESOP Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.