Employee Ownership Fairness Act of 2025
The Employee Ownership Fairness Act of 2025 would modify ERISA and the Internal Revenue Code to create special, ESOP-specific rules. The core idea is to allow employees who participate in an Employee Stock Ownership Plan (ESOP) to benefit from the full ownership gains that can accumulate in the ESOP while also continuing to save for retirement through a separate defined contribution plan (like a 401(k)) without the ESOP’s stock holdings or related loan repayments inappropriately shrinking or blocking other retirement savings. In practice, this means ESOP contributions tied to employer stock or loans to acquire employer securities would be treated separately from other retirement plans, with limits calculated independently for ESOPs. The changes would apply to plan years beginning after enactment. The bill also extends protections so that forfeitures allocated to ESOP accounts would not count toward annual contribution limits. Overall, it aims to preserve and expand worker ownership through ESOPs while ensuring employees can diversify and save for retirement through traditional defined contribution plans. Introduced in the Senate by Senator Cassidy in May 2025, the bill would implement these provisions by amending ERISA and the Internal Revenue Code.
Key Points
- 1Creates special ESOP rules by adding a new ESOP-specific framework under ERISA and the Internal Revenue Code, with separate treatment from other defined contribution plans.
- 2Excludes ESOP-related contributions (employer stock contributions and loan repayments to acquire employer securities) from the 404(a)(3) calculation and from the 415 annual additions test; these ESOP amounts are not counted against the limits that apply to other retirement plans.
- 3Requires that the 404(a)(3) limits be applied separately to the ESOP and to any other defined contribution plan of the same employer; similarly, 415(c) limits are determined without regard to ESOP stock contributions or loan repayments for the ESOP.
- 4Adds a new ESOP-specific rule under 415 to ensure forfeitures allocated to ESOP accounts are not counted as annual additions.
- 5Effective date: the amendments apply to plan years beginning after the date of enactment.