[Congressional Record Volume 144, Number 140 (Thursday, October 8, 1998)]
[Extensions of Remarks]
[Page E1965]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                INTRODUCTION OF ESOP REFORM LEGISLATION

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                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Thursday, October 8, 1998

  Mr. CRANE. Mr. Speaker, today I am introducing two bills to provide 
tax reform in order to encourage economic growth of employee-owned 
companies in my State of Illinois and around the country.
  I have been a strong advocate of employee stock ownership plans 
(ESOP's). I also have the privilege of representing a significant 
number of employee-owners of the Nation's largest publicly-owned ESOP, 
United Airlines. After taking over the ownership of the company, the 
United employees effected a dramatic economic turnaround of the 
company's fortunes--making United Airlines a financial success story.
  In the summer of 1997, Gerald Greenwald, Chairman and CEO of United 
Airlines, came to me with ideas to amend the tax rules to allow 
employees to better utilize their ESOP Investments. When the ESOP tax 
laws were written, they did not account for companies like United 
taking ESOP's to such a grand scale. So, as in so many cases it is time 
for the law to catch up to the realities of the marketplace.
  I have been working on these proposals since then to prepare for an 
opportunity to include them in an appropriate tax vehicle. Such an 
opportunity has not yet presented itself. Therefore, I am introducing 
these proposals as stand-alone bills and to bring more attention to the 
need for updating the ESOP laws.
  While ESOP's give the employees a stake in the company and provide a 
great opportunity to invest for retirement, the current tax rules 
restrict the ability of employees to use their investments for other 
important events in their life.
  The first bill will expand the ability of employee owners to make 
qualified distributions from their ESOP's, without incurring a 10-
percent penalty on early withdrawals. Similar to the expanded uses for 
individual retirement accounts Congress has passed, this proposal will 
allow ESOP distributions for first time home purchases or for college 
expenses. This will especially benefit middle-income level employees 
who find it more difficult to save the money to buy their own home or 
send their children to college.
  The second proposal would address a conflict between 401(k) plans and 
ESOP's. Under current law, employer contributions to 401(k) retirement 
plans are limited when contributions are also being made to an ESOP. My 
bill will allow employers to contribute to their employees' 401(k) 
plans without taking into account their ESOP contributions.
  I commend these bills to the attention of my colleagues and urge them 
to support the employee-owners at United and other ESOP's around the 
country by cosponsoring these measures.

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