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Guest Blog: State of Iowa is a leader in ESOP-friendly policy

August 25, 2016

By Jerry Ripperger, Principal Financial Group®

If you are a business owner who wants liquidity, or is looking to transition to retirement, you need to be aware of an innovative, nationally recognized program run by the Iowa Economic Development Authority (IEDA). It’s called the Employee Stock Ownership Plan (ESOP) Formation Assistance Program, and it can make creating an ESOP substantially more affordable. An ESOP is a financial instrument that allows employees to buy part or all of their company through a trust fund. In return, the business owner gets liquidity for his or her company shares without selling to an outside investor. Here’s how the program works:

  1. Businesses interested in creating an ESOP apply to the IEDA
  2. An IEDA panel and the IEDA director review the application
  3. If approved, the IEDA reimburses up to 50 percent of the costs the business incurs to obtain an ESOP feasibility study – up to $25,000

In addition to keeping ownership within the company, there are numerous tax benefits for setting up an ESOP. For example, if the business owner sells at least 30 percent of the company to the ESOP, he or she receives a 50 percent reduction in state capital gains taxes on the transaction.* ESOPs can be a great method for business owners at virtually any stage in their careers to gain liquidity. ESOPs can be arranged at companies that are public or private, large or small. Principal Financial Group, my employer, created the below video to educate business owners about ESOPs. Watch it for more information on how ESOPs work, and why business owners use them.

Few states have anything like Iowa’s ESOP Formation Assistance Program. To learn more, visit the above link or contact IEDA at Jerry Ripperger is vice president of consulting at Principal Financial Group and a Princor Registered Representative.
*Based on current state laws.
The subject matter in this communication is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, IA 50392.
©2016 Principal Financial Services, Inc.
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