00:00Thank you, Mr. Chairman.
00:05I would like to thank you and the ranking member for making this a priority.
00:09I think that ESOPs are one of the most virtuous forms of capitalism in America.
00:17If you look at the information, you can see that it's good for the employees.
00:24The companies tend to do better than those who have been exited with, say, a private equity
00:32investment, which I would like for you, if any of you have thoughts about the difference
00:40in the marketplace between an exit that involves a private equity exit versus an ESOP exit and
00:46what that means.
00:49I hope that we will get this accomplished because I do believe that there is a lack of awareness
00:54about the ESOP option and that there is friction.
01:02The company owners I encounter most are usually family owners, that they have this family business,
01:08there's not someone to take it over, they would like to exit, they have a private equity option,
01:14they have an ESOP option, and if it's more difficult for them to do an ESOP, then they're less likely
01:20to do it.
01:21And if it's easier for them, they can.
01:26And then we also would also like you to address the diversity because capitalism is hard, running
01:33a business is hard.
01:35Sometimes they fail even because of markets and other factors.
01:41How did you protect for the diversification for some of the employees as you're looking
01:47at not having all of their eggs in one basket?
01:50If anyone has a thought on that, please share.
01:54Yeah, sure.
01:57Thank you very much for your question, Senator.
02:00I'll take the diversification issue first.
02:05It's really important with ESOPs, the research that we have that I placed into the record that
02:11shows that 70% of ESOPs tend to have separate 401k plans.
02:20When ESOP companies contribute to 401k plans, they have significantly higher balances than
02:25non-ESOP companies.
02:29More ESOPs, in fact, have ESOP workers have defined benefit plans than non-ESOP workers.
02:34And ESOPs are not to the disadvantage of other retirement plans.
02:38Also I think it's important to recognize that the workers are not buying the stock with their
02:42savings and with their wages with virtually all ESOPs.
02:46That's very important.
02:47That does reduce some of the risk.
02:50Lastly, we've seen that ESOP companies to diversify acquire other companies whose businesses
02:57are counter-cyclical to their own.
03:00And that's something that requires a lot of thought and future planning.
03:04Every ESOP company should have a committee to plan for when the market changes because
03:09capitalism changes.
03:11New things happen.
03:12If you plan for it, you can do a better job.
03:15Go ahead.
03:17Yeah.
03:18No.
03:19I'm okay.
03:20I was just going to add one note on the diversification piece.
03:23I can speak to a sample size of one at King Arthur.
03:25So in addition to everything that was mentioned, there is kind of a planned design.
03:30But there are required options that you have to offer where if someone is 55 years of age
03:36and has 10 years of experience, they can diversify.
03:38King Arthur, we've taken that one step further and amended our plan to bring that age down
03:44to 40 years.
03:45So it's technically not diversification.
03:47It's an in-service distribution.
03:48But that allows if you have 10 years of experience in 40 years.
03:51So it allows the younger workforce to diversify sooner.
03:57I'll just comment to your private equity versus an ESOP.
04:01So, you know, an ESOP is a longer-term transition.
04:06You're going to have a different goal in moving your company to an ESOP, meaning you probably
04:11want to continue the culture and the work ethic and maybe even some of your own leadership
04:16as an employee or as an owner into the life of the ESOP.
04:20And so that, to me, is a longer-term.
04:22Whereas a private equity transaction will also have, you know, completely different objectives
04:27because that typically is a shorter-term hold.
04:30And so there's the difference there, and it just boils down to what does the owner want
04:34to accomplish for his company?
04:35Yeah.
04:36And do you know anyone who maybe wanted to do an ESOP but felt that the rules for doing
04:42it were so difficult that they chose otherwise?
04:44Have you encountered that?
04:47Mr. Roy?
04:49Yes, I have seen that at least a couple of times.
04:53It's tied around the valuation issues that I mentioned earlier.
04:56I will add that we have multiple additional opportunities to diversify starting, I think,
05:03at the age 45 and then beyond the 55.
05:08We have once you're 55, you can diversify every year until the end.
05:12We also bring in investment advisors to help counsel our employees about the need to diversify.
05:20However, we've outperformed the market so much that we have very little success in getting
05:25people to diversify.
05:26Great.
05:27Thank you very much.
05:28Thank you, Mr. Chairman.
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