[Congressional Record Volume 145, Number 77 (Wednesday, May 26, 1999)]
[Senate]
[Page S6060]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BREAUX (for himself and Mr. Hatch):
  S. 1132. A bill to amend the Internal Revenue Code of 1986 to allow 
the reinvestment of employee stock ownership plan dividends without the 
loss of any dividend reduction; to the Committee on Finance.


    esop dividend reinvestment and participant security act of 1999

  Mr. BREAUX. Mr. President, I rise today to introduce a measure that 
will not only promote employee ownership, but also enhance retirement 
savings. The ``ESOP Dividend Reinvestment and Participant Security Act 
of 1999'' will grant many workers their long-sought desire to share in 
the growth of their company while not sacrificing one nickel of their 
retirement security. This legislation will permit employees to reinvest 
dividends paid on employer securities held in an ESOP without going 
through the administrative complexity that companies currently face in 
order to encourage workers to keep their dividends in the plan.
  Under current law, an employer may deduct the dividends paid on 
employer securities in an ESOP only if the dividends are used to repay 
an ESOP loan or they are paid in cash to participants. This runs 
counter to one of the most important themes expressed by this 
administration as well as many others since the passage of ERISA--what 
to do about ``leakage'' in our retirement programs, or assets coming 
out of plans prematurely. In short, we need to encourage our nation's 
workers to keep their money in their retirement plans and not let small 
amounts drip out over time so that little is left by the time they 
enter retirement. The bill I am introducing today addresses this issue 
and would bolster the retirement security of ESOP participants because 
it would encourage both employees and employers to reinvest their 
dividends in the company.
  Not only does the current approach of denying a deduction for 
reinvested dividends discourage the accumulation of assets for 
retirement, it also thwarts one of the primary purposes of an ESOP--
providing an efficient means for employees to build an ownership 
interest in their company. Congress has steadfastly maintained the ESOP 
dividend deductibility rules for over 15 years in order to encourage 
employers to establish ESOPs that hold dividend-paying company stock. 
These rules clearly are intended to provide ESOP participants a broader 
opportunity to share in the company's growth and to ultimately use such 
growth to provide retirement assets. Unfortunately, our present rules 
fall short of the mark.
  This bill fulfills the promise inherent in the original ESOP dividend 
deduction provision. The ``ESOP Dividend Reinvestment and Participant 
Security Act of 1999'' would give employees the ability to retain the 
dividends paid on employer stock in the ESOP and to reinvest these 
amounts in the employer stock for continuing growth and accumulation. 
No employee would then be forced to receive dividends that could 
instead be used to build retirement savings. And, all employees could 
receive the benefit of participating in their company's growth.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1132

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``ESOP Dividend Reinvestment 
     and Participant Security Act of 1999''.

     SEC. 2. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF 
                   DIVIDEND DEDUCTION.

       (a) In General.--Section 404(k)(2)(A) of the Internal 
     Revenue Code of 1986 (defining applicable dividends) is 
     amended by striking ``or'' at the end of clause (ii), by 
     redesignating clause (iii) as clause (iv), and by inserting 
     after clause (ii) the following new clause:
       ``(iii) is, at the election of such participants or their 
     beneficiaries--

       ``(I) payable as provided in clause (i) or (ii), or
       ``(II) paid to the plan and reinvested in qualifying 
     employee securities, or''.

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.
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