Not All Gloom and Doom
Following is an abbreviated version of remarks delivered by The ESOP Association’s President and Chief Staff Officer, J. Michael Keeling, to attendees of the 18th Annual Las Vegas Conference and Trade Show held at Caesar’s Palace in Las Vegas, NV, November 12 and 13, 2009. The speech originally ran in the November 2009 issue of the ESOP Report.
“Today’s remarks are in two parts. As I travel around the country speaking primarily to our Chapter meetings, many accuse me of being the “doom and gloom” guy. Many claim I paint a doom and gloom version of events in DC potentially impacting ESOPs because I am trying to scare people to be members of the Association, or to maintain their membership. Less cynical are those who feel I am just sounding the alarm to ensure ESOP advocates stay on their toes when it comes to selling the ESOP message to members of Congress.
So here is the doom and gloom:
Last year in my remarks to Vegas attendees, I praised the historical importance of the election of a man as the number one leader in our nation who just 50 years ago could not eat, sleep, or ride public transportation except as a second class citizen in 20 or so states in our nation.
I also said, without hesitation that day that there are no ESOP fans in his inner circle of advisors, and their view of employee ownership through ESOPs seemed to be shaped by United, Enron, WorldCom, Bear Sterns, Fannie Mae, and so on. And while ESOP fans like to holler that not all of the negative stories arising from the collapse of these companies and their stock value involved ESOPs, in some form or fashion, company stock ownership, direct or indirect, was broad-based in these companies.
One year later, I have not changed my view of the key persons in this Administration.
But my doom and gloom has a caveat --- ERISA policy, of which ESOPs are a part, is not front and center at the highest levels of our government. I feel comfortable in stating that in my years of working around the developing of public policy, the number of times that ERISA policy was seriously discussed in the Oval Office of the White House can be counted on my fingers and toes.
But at the level of policy development of retirement savings policy, among third, fourth level, and among career employees of the Federal agencies overseeing ERISA law --- IRS, DOL, Treasury, Joint Committee of Congress, tax committee staff, labor committee staff --- I call these people not bureaucrats, but ERISAcrats --- there is ample evidence that they believe and are trying to promote policies to drastically reform defined contribution plans.
Having read their writings, and having heard them speak, candidly they use the scare tactic that unless major changes are made in Federal ERISA laws, in a few years literally millions of Americans over 65 will be living in poverty, on the streets, on the public dole, hungry, and so on.
The ERISAcrats talk of the wonderful 50s and 60s, and are joined by mainstream media pundits when retired American’s had the “Life of Riley” or “Father Knows Best” lifestyle images with white picket fences surrounding their homes, because they were all retired with a steady stream of income from defined benefit plans.
Of course this picture of retirees in the 50s, 60s, and even the 70s and 80s is just false --- at no time did a majority of Americans ever participate in any kind of retirement savings plan sponsored by their employers, whether db or dc.
But be that as it may, the scare tactics, and the twisting of historical data --- sadly seemingly used by both left and right political advocates in this day and age of 24-7 news, twitter, facebook, blogs, etc. --- has lead to the ERISAcrats putting forth, with supporters among a handful of members of Congress, ideas to make dc plans more like db plans.
For example, using the Federal employee Thrift Savings Plan as a model, there would be a government group that decides what investments an employee and employer could put their savings in; there would be mandatory employer contributions; and mandatory purchasing of annuities with distributions.
Let me assure you, among these recommendations, at worse is the view that no company stock ever be in the “reformed” dc plans, and at best, company stock be limited to 5 to 10% of the assets in an individual account.
But as noted, ERISAcrats --- given the low priority retirement savings have when our nation faces two wars, constant threat of terrorists attacks, a sick economy, bitterness over certain social policies, to name a few of the daily headlines --- seldom succeed in having their “dreams” become law.
An analogy can be made to the health care debate, as the true desire of the more “liberal” members of society is for a single payer system, and this view ran into a firestorm of effective protest and it is not even being considered by Congress.
But like in the health care debate, the push for change by the ERISAcrats will have some impact on the development of tax policy, and most likely, the lesser areas of ERISA will be endangered --- for example, look for 401(k)s to withstand the attack against them since so many k plans cover so many workers --- but look for the attack on company stock as a retirement savings asset to have more potential impact since there are not that many ESOPs in our nation.
And the opportunities for the ERISAcrats to reach their desire to stop, or at least, curtail the use of employee stock ownership for retirement savings will be plentiful in the next one to five years, or even beyond.
As I have said in the newsletter, on the blog, and elsewhere, every chance that I get, we are about to see a repeat of the 80s as far as tax policy is concerned.
[Here, Keeling talked of the similarities between the goal to lower the Federal deficit after the 1981 tax cut bill, and the 2009 large spending increases, as in the 80s, when both Republicans and Democrats dedicated their work to raise Federal revenue to lower the Federal deficit.]
So what happened? After the largest tax cut bill in the history of the nation in 1981, within one year, the Congress passed and President Reagan signed the largest peace time tax increase bill in 1982. And there were tax increase bills in 1984, 1986, 1987, 1989, 1991, and 1993 before the tax increases let up.
These bills did not raise tax rates, but instead raised taxes by eliminating, or restricting so-called corporate tax loophole, both corporate and individuals. And what do the ERISAcrats think of ESOP tax benefits that spread the ownership of assets among employees? They view ESOPs as wasteful and not needed, and even “evil” corporate and individual corporate tax loopholes that promote bad retirement savings policy.
In the 80s, with each tax bill, the ERISAcrats put on the table the ESOP tax benefits for elimination, or cutbacks.
Now, I give you the second part of my remarks—which are not gloom and doom.
The ESOP community is stronger today than it was in 1980.
Despite the economy, the Association, and allied organizations that did not exist in the 80s are bigger, with more resources, more key friends in Congress, and with a more entrenched grassroots network promoting employee ownership through ESOPs with members of Congress.
[Here in the remarks Keeling reviewed pending pro-ESOP legislation, and the influence supporters of the pro-ESOP legislation had in Congress. Details about the legislation can be followed in prior newsletters, e-bulletins, and on the Association’s website under the Government Affairs link at the top of the page.]
Key to winning is exposure of your ESOP company in your community. While the Employee Ownership Foundation is making inroads in spreading pro-ESOP facts in academia, and among the nation’s think tanks, what is visible in an ESOP company makes the biggest impression on a member of Congress.
Let me close by sharing a story, first hand, of the power of someone seeing the intangible, and yes it is intangible, power of shared ownership among employees, top to bottom, in a corporation.
As many of you know, the primary ESOP laws exists because of one man, former Senator Russell Long, from 1973 until he retired at the end of 1986. During some of that period, when ERISA was enacted, I worked for a senior member of the House Ways and Means Committee, the former Congressman J.J. Jake Pickle, who like Senator Long, is deceased.
In that era, no one in the House cared about ESOPs. It was viewed as just some sort of weird tax flim-flam by minor lawyers and deal makers to get money out of a private company, and to give public companies a cheap way to tell employees that they had retirement savings.
What a House member did care about was that when there was a so-called Conference Committee to work out the differences between a House tax bill, and a Senate tax bill, he or she could horse trade with Senator Long over an ESOP provision in return for his support to be for that House member’s pet tax law proposed changes.
One day I was in Congressman Pickle’s office during a tax conference period, and he was in what proved to be his toughest re-election campaign that year, 1980. So he was going around to companies shaking hands each week to gain voter support. Out of the blue he said, “I was at [he named a company in Austin, Texas] this past Friday, and they had that thing that Russell talks about all the time, that, that, what do you call it? [I said ESOP]. Yea, an ESOP --- I had never been in a company with the same kind of feel to it, the same kind of attitudes towards the CEO and leadership as I walked around. It was special, very special. Russell must be right; he must be onto something with his ESOPs.”
From that day forward, Congressman Pickle was one of the ESOP world’s best friends in Congress until he retired in 1995.
So, our fate is in our hands, to not hide our wonderful ESOP story as a light under a bushel. If we expose our companies, on site, we will maintain ESOP policy and defeat any attack, and hopefully expand over the long run, our pro-ESOP laws.
I thank you for your attention.”
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