Employee Ownership Fairness Act of 2026
- Sponsor
- Rep. Perry, Scott [R-PA-10]
- Committees
- Education and Workforce Committee (primary)
- Last action
- Jul 20, 2026
Bottom line
The bill aims to remove current disincentives for ESOP participants to save in additional defined contribution plans by adjusting how contribution limits are calculated for ESOPs, allowing for greater retirement savings diversification.
What it actually does
This bill amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC) to modify how certain contributions to Employee Stock Ownership Plans (ESOPs) are counted against federal retirement plan limits. Specifically, it excludes contributions of employer stock and contributions made to repay ESOP loans from annual deduction and addition limits, and mandates that these limits be applied separately to ESOPs and other defined contribution plans. It also excludes forfeitures allocated to ESOP accounts from being counted as annual additions.
Proponents argue
Proponents argue that the current tax code limits penalize successful ESOP companies and their employees by preventing workers from diversifying their retirement savings and sometimes forcing employers to deny matching contributions. They contend this bill aligns with the original intent of ESOPs to empower workers and foster economic growth, ensuring employees can fully benefit from both their ownership stake and traditional retirement savings.
Opponents contend
Critics might argue that these changes could lead to a disproportionate tax benefit for highly compensated employees in successful ESOP companies, potentially increasing tax expenditures without sufficient justification for broader economic benefit. They might also raise concerns about the complexity of applying separate limits and the potential for unintended consequences in retirement plan administration.
The bill is concise and relatively easy to read, allowing a reader to quickly grasp its core intent and provisions.
Section 3(a) (ERISA amendments) and Section 3(b) (IRC amendments)
Exclusion of ESOP Contributions and Forfeitures from Annual Limits
This provision amends both ERISA and the Internal Revenue Code to change how certain contributions to Employee Stock Ownership Plans (ESOPs) are counted towards federal retirement plan limits. Specifically, it excludes contributions of employer stock and contributions made to repay ESOP loans from the annual deduction limits (Section 404(a)(3)(A)) and annual addition limits (Section 415(c)(2)). It also mandates that these limits be applied separately to ESOPs and any other defined contribution plans an employer offers. Furthermore, forfeitures allocated to ESOP accounts will no longer be taken into account as annual additions.
Supporters argue
Supporters argue that this change is crucial for ESOP participants to fully realize the benefits of both their ownership stake and traditional retirement savings. They contend it rectifies an unintended consequence of current law that penalizes successful ESOP companies and their employees, hindering diversification and employer matching contributions.
Critics contend
Critics might argue that this creates a special carve-out for ESOPs that could be seen as an additional tax expenditure, potentially benefiting higher-income employees more significantly. They might question whether the existing limits are truly an impediment to adequate retirement savings for the majority of ESOP participants.
Tradeoffs
The bill balances the goal of promoting employee ownership and retirement savings diversification against concerns about tax expenditures and equitable application of retirement contribution limits across different plan types.