S. 2461 — Promotion and Expansion of Private Employee Ownership Act of 2025

This section sets forth congressional findings on the history and benefits of employee stock ownership plans (ESOPs) in subchapter S corporations—including greater job stability, retirement savings, and ownership for millions of workers—and notes that such ESOP-owned S corporations lose small business concern status under the Small Business Act if the ESOP acquires more than 49% ownership, despite meeting other eligibility criteria.

This section accelerates the effective date for nonrecognition of gain on sales of S corporation employer securities to an employee stock ownership plan (ESOP) to the date of enactment of this Act (from after December 31, 2027) and repeals limitations on such nonrecognition applicable to sales after enactment. (Thus, S corporation owners may immediately defer capital gains tax on qualifying ESOP stock sales by purchasing qualified replacement property.)

This section requires the Secretary of the Treasury to establish, within 90 days of enactment, the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations. The office must provide (1) education and outreach to inform companies and individuals about the possibilities and benefits of employee ownership of S corporations and (2) technical assistance to help S corporations sponsor employee stock ownership plans.

This section establishes in the Small Business Act a new section 49 providing continued eligibility as a small business concern for SBA loans, preferences, or other programs to an ESOP business concern—defined as a business that qualified as small before an employee stock ownership plan (ESOP) acquired more than 49% of it—by treating each ESOP participant as directly owning their proportionate share of the ESOP-owned stock. (Thus, such businesses may retain small business status and associated benefits following majority ESOP ownership.) The amendments take effect on January 1 of the first calendar year after enactment.

This section establishes the Advocate for Employee Ownership within the Employee Ownership Initiative of the Department of Labor, as created under the SECURE 2.0 Act of 2022. The Advocate, appointed by the Secretary of Labor without regard to competitive service or Senior Executive Service requirements, must (1) consult with the Initiative head; (2) serve as a liaison among the Department, employee ownership advocates, employers, workers, ESOP sponsors, and participants; (3) provide public education and assistance to promote employee ownership, including ESOPs; (4) assist ESOP sponsors, fiduciaries, and participants in resolving disputes with the Department and facilitate communications; (5) recommend legislative and administrative changes to expand employee ownership, including access to capital, in consultation with Treasury's S Corporation Employee Ownership Assistance Office; and (6) coordinate outreach and education with other federal agencies (e.g., Small Business Administration, Treasury, Commerce) and state/local governments on employee ownership as a business succession option. (Employee stock ownership plans, or ESOPs, are tax-qualified defined contribution plans under ERISA and the Internal Revenue Code that invest primarily in employer securities to promote broad-based employee ownership.) The Secretary of Labor must consult the Advocate on regulations or interpretations related to ESOPs; the Advocate receives compensation at Executive Schedule level V; and the Advocate must submit an annual report by December 31 to the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Education and the Workforce—covering assistance requests, activities and effectiveness, identified problems and mitigations, recommendations, and U.S. employee ownership progress—with concurrent submission to the Secretary and public availability. This section authorizes appropriations for the compensation and includes a conforming amendment to ERISA's table of contents.