Wisconsin Chapter of The ESOP Association

January, 2012 Wisconsin Chapter of The ESOP Association ESOP advocacy a success in 2011! Wisconsin TEA members efforts to gain legislative support for ESOPs were a tremendous success this past year! After a group of ESOP advocates from our state met with representatives in Washington, three Wisconsin legislators joined a bi-partisan group to sponsor H.R. 1244, the Promotion and Expansion of Private Employee Ownership Act of 2011. Congresswoman Gwen Moore, Congressman James Sensenbrenner, and Congressman Reid Ribble all signed on to support ESOPs in 2011! Gwen Moore (District 4) F. James Sensenbrenner (District 5) Reid Ribble (District 8) Ron Kind (District 3) Congressman Ron Kind (District 3) co-sponsored H.R. 1244 when it was introduced in March, 2011. The following Wisconsin representatives have also shown public support of ESOPs during their service in Congress: Congresswoman Tammy Baldwin, Congressman Thomas Petri, and Congressman Paul Ryan. Tammy Baldwin (District 2) Thomas Petri (District 6) Paul Ryan (District 1) Thank you to the Chair of the WI TEA legislative committee, Sandy Paavola (Enterprise Services, Inc.), for her efforts in coordinating visits to state representatives and also to committee members, Lynn Seeger (CC&N), and Wendy Yates (Wildeck, Inc.), for their efforts in educating TEA WI members on how to promote ESOPs to Congress! Newsletter sponsored by: es ESOP Valuations and Consulting

First quarter update Cut Spending in the Tax Code Wasteful Spending in the Tax Expenditure Budget is Fertile Ground for Deficit Reduction By: Seth Hanlon and Michael Ettlinger March 2011 Recap of article Spending cuts are on a fast track for the remainder of the FY2011 in Washington. Many programs that are targeted for cuts in the federal government are only a small and narrow portion of the big picture. The proposed 60 billion in cuts could not only harm the weakened economy it could set us back even further. The article looks at tax-expenditure spending, which often escapes the scrutiny it deserves, and is allowed to continue year after year untouched. What is a tax-expenditure: They are essentially federal spending programs administered by the IRS. The IRS programs promote many of the same goals by distributing special tax breaks. Why do Tax Expenditures fly under the radar? First, tax expenditure are not periodically reviewed, unlike the budgets of individual federal government departments and agencies. Most tax expenditures are permanent fixtures of the tax code with costs that tend to drift upwards over time. Secondly, tax expenditures do not have to compete against other spending priorities of the relevant congressional committees. The tax writing committees have the singular authority to spend money without budget allocation. Lastly, because tax expenditures are often sold as tax cuts, they enjoy a politically favored status. A recent analysis by the Joint Committee on Taxation found that the number of tax expenditures increased by 60 percent since the Tax Reform Act of 1986. Tax expenditures and the current budget debate The long term savings over time could amount to substantial. For FY2011 to have tax expenditures cut could cause some logistical and practical issues. There could be FY2011 savings by making activity available only up to a certain date and evaluating all of the tax expenditures for effectiveness. The savings from these tax expenditures could be used for either deficit reduction or high priority spending. The full report has a narrower list of provisions where savings could start to be realized relatively quickly. To view the full report please go to: http://www.americanprogress.org/issues/2011/03/pdf/tax_expenditures.pdf * Reminder: Individuals need to be diligent about congressional contacts and voicing concerns they may have.

First quarter update Pro-ESOP Bill Introduced in U.S. House of Representatives On March 29, 2011, six members of the House Ways and Means Committee introduced pro-esop legislation H.R. 1244, the Promotion and Expansion of Private Employee Ownership Act of 2011. Congressmen David G. Reichert (R-WA), Ron Kind (D-WI), Charles W. Boustany, Jr. (R-LA), Earl Blumenauer (D-OR), Erik Paulsen (R-MN), and Bill Pascrell (D-NJ) co-sponsored the bill. Having SIX Members an equal number of R s and D s of the Ways & Means Committee as original cosponsors is an incredibly important step. This bill, substantially similar to the previous H.R. 3586 introduced in the last congress is designed to: Encourage owners of S corporations to sell their stock to an ESOP Expand financing opportunities for S corporation ESOPs Provide additional technical assistance for companies that may be interested in forming an S corporation ESOP Acknowledge the importance of preserving the S corporation ESOP structure in the Internal Revenue Code Protect ESOP companies from losing their SBA certification as the ESOP s ownership of the company grows. For additional information about H.R. 1244, please visit The ESOP Association s website, http://www.esopassociation.org/ and the Employee Ownership Blog, http://www.esopassociation.org/blog/default.asp.

2011 Wisconsin ESOP Capitol Hill Visit Recap Last week during the national ESOP Association Annual Conference in Washington, DC, members of our Wisconsin chapter visited Capitol Hill to meet with members of congress and their staff. During these visits we achieved our main objectives: Educate about ESOPs and the benefits of employee ownership. Discuss the current pro-esop legislation that encourages the creation of ESOPs (H.R.1244). Raise awareness and concern over the DOL proposed regulations re-defining the definition of fiduciary. Strengthen our relationship and rapport with congressional leaders, so that they know us and our cause. Reinforce our position with congressional members and their key advisors to make our voices heard (particularly in the case where tax law is drafted that negatively impacts ESOPs). This was our third annual organized effort as a chapter, and we made a total of five visits: our two senators and three house members that represent those ESOP companies in attendance. A brief recap on our visits follows; the individuals who attended either one or multiple Hill visits include: Sentry Equipment: Mike Farrell, Sherri McDermott, Rhonda Leader, John Powalisz, Chris Skladanek (WI ESOP Company of the Year) CC&N: Lynn Seeger EMCS: Rose Morgan, Jeff Morgan, and Annette Mueller Priority Sign: Janelle Hoftiezer (WI Employee Owner of the Year), and Deb Covey Enterprise Services: Sandy Paavola, Scott Miller ESOP Partners: Aaron Juckett Senator Ron Johnson Several members of our delegation met with Senator Johnson and his Chief of Staff, Donald Kent. Highly familiar with ESOPs (his mother Sentry Equipment - WI ESOP Company of the Year retired from an ESOP company), the Senator is open to hearing from us on the impact that any particular tax proposal may have on ESOPs, and expressed interest in supporting a senate companion bill to H.R. 1244. The Senator and his staff also offered to help us in our concern over the proposed DOL regulations. Senator Johnson and Mr. Kent gave us a generous amount of their time, and graciously offered a photo opportunity for us. He is pro-business and open to supporting our goal in the continuation of policy that encourages broad-based ownership. We will stay in touch with his office as tax law proposals are made and bring to his attention any impact (both positive and negative) to ESOPs. Senator Herb Kohl Our chapter met with Ashley Carson, Senior Policy Council to Senator Kohl. We took the opportunity to do some education and highlight the benefits of employee ownership. We also discussed current proposed legislation and some of the negative perceptions about ESOPs. The day following our visit, Senator Kohl announced that he was not seeking a fifth term; however,

in follow up communication with Ms. Carson and Harry Stein, Senator Kohl s legislative assistant on taxes, with whom we ve met with last year, we asked for the Senator s support over the next 18 months in ESOP related matters. Mr. Stein indicated the Senator Kohl met with various Wisconsin ESOP companies recently and was impressed with them and the benefit provided to their employees. Senator Kohl s office is open to assisting us with tax issues that are of importance to us. Congressman Tom Petri Our chapter met with Congressman Petri and his senior legislative assistant, Richard Markowitz, to discuss ESOPs and current proposed legislation. Congressman Petri has been a strong proponent of ESOP companies, and was generous with his time not only during our visit, but through numerous visits to ESOP firms in his district over the years. Priority Sign, Sheboygan asked for the congressman to visit their office during 2011. We shared employee ownership stories and benefits, and talked about the upcoming tax law changes, H.R.1244, and the DOL regs. On all counts, Congressman Petri has offered his support. We thanked the Congressman for his time and continued support of ESOPs. (l to r) Sandy Paavola, Janelle Hoftiezer, Congressman Petri, Deb Covey, Scott Miller. Congressman James Sensenbrenner Our chapter met with Matt Bisenius, Legislative Assistant to Congressman Sensenbrenner. We used the opportunity to discuss current proposed legislation, explain ESOPs, and share employee ownership culture with Matt. We indicated that we hoped Congressman Sensenbrenner would be supportive to our cause, and that as tax revenue policies are advanced, we can ask for his support on issues relating to ESOP companies. We asked for his support for H.R 1244 and against the DOL proposed regs. We also discussed our hope to have the Congressman join us in a multi-company ESOP meeting at one of our member companies when he is back in the state sometime this year. Congresswoman Gwen Moore Since Congresswoman Moore was not available, we met with her Legislative Director, Andrew Stevens. We discussed current ESOP legislation, shared employee ownership statistics and benefits, and asked for the Congresswoman s support for H.R.1244. Mr. Stevens indicated that the Congresswoman would join support for the bill. This, our first official contact with Congresswoman Moore s office, we hope to build on our visit and continue dialogue with her and her staff to earn support on ESOPs. Conclusion Overall, we were excited about the visits, garnering support and awareness of our cause. The time spent was a critical reminder that we not take the current legislation benefiting ESOPs for granted. We need to constantly remind our representatives in Washington how great employee ownership is for their constituents, keeping this issue on the top of their minds as debate continues about deficit reduction and tax law changes. It is up to all of us to advocate the issues that impact the ESOP community, and we must all make a commitment to create opportunities to talk about the benefits of ESOPs with our congressional members.

We hope to continue this effort each year in connection with the Annual ESOP Conference in DC, expanding on the number of congressional members visited. In order to do so, we look for more member companies to join us in Washington next year to talk ESOP with their district s representative. We also want to encourage you to host a congressional visit at your ESOP company. The chapter officers are here to help you with the details! Together we can continue our goal to educate and advocate for ESOPs and legislation that promotes employee ownership! If you have any questions at all, please do not hesitate to contact one of the Wisconsin Chapter s Government Relations sub-committee members: Sandy Paavola, Chair Enterprise Services, Inc. spaavola@esi-enterprise.com 262.646.6490 Sherri McDermott - WI Chapter President (l) Sandy Paavola - WI Chapter Vice President (r) Lynn Seeger CC&N lseeger@cc-n.com 414-647-3326 Wendy Yates Wildeck, Inc. wyates@wildeck.com 262-549-4000

August 2011 Government Relations Update In Washington DC: DOL Proposed Regs Defining Valuation Providers as Fiduciaries Efforts continue to challenge/overturn the DOL proposed regulations with more House and Senate members joining legislation introduced to stop the current proposal issued by the DOL. 1. S.1232 (Senate): June 21, 2011 Senator Kelly Ayotte (R-NH) introduced S. 1232, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. Co-sponsors: Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA). 2. More hearings were held recently (July 26, 2011) at the House Subcommittee on Health, Employment, Labor and Pensions (subcommittee under the Education and Workforce Committee) regarding redefining fiduciary and the impact on workers and retirees. Overall, after testimony, the committee cited concerns about the costs of the proposed regulation and indicated that the proposal is ill-conceived. It was noted that both democratic and republican leaders have expressed concerns and urged the department to re-propose the rule. 3. Specific testimony by Mr. Jeff Tarbell, a Director at Houlihan Lokey cited three concerns: a. The cost of the proposed rule, b. The proposed rule directly conflicts with longstanding professional and regulatory standards requiring an appraiser provide an independent and impartial opinion of value, c. If DOL s goal is to regulate valuation and fairness opinion providers directly, then the agency first needs to put in place standards governing such. 1) DOL has claimed (as published by ESOP Assn) that the proposed rule is designed to correct the common problem of substandard valuation and fairness opinion provider work. However, the DOL has provided no empirical support in the record that such a problem is widespread and some question whether it (the DOL has in-house expertise to make such a determination. The agency has provided no explanation as to the nature of the problem for faulty valuations. The DOL s stated goal to regulate valuations and fairness opinions providers does not articulate the standards by which the agency would evaluate valuation work. Regulatory standards of practice governing valuation and fairness opinion providers should be agreed upon before the question of enforcement of such standards can take place. Pro-ESOP Legislation In addition to S.1232 in support of ESOPs with regard to the DOL proposed regulation, H.R.1244 (House of Representatives), the Promotion and Expansion of Private Employee Ownership Act of 2011, has gained more traction. This bill would: 1. Permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984; 2. Permit lenders to S corporations with 50% or more ownership through an ESOP to exclude 50% of the interest from the loan, if used to acquire stock for the ESOP;

3. Establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs; 4. Permit a small business, S or C, eligible for Small Business Administration (SBA) programs to continue its eligibility after becoming majority owned by an ESOP if employee demographics remain the same. This bill has broad-based participation and co-sponsorships from both sides of the aisle (democrat and republican). Most recently, Congresswoman Gwen Moore signed on as a co-sponsor. (Note: the WI chapter delegation met with her advisors during the Annual Conference in May 2011.) While there is broad support, it is unlikely much will come of this bill until full tax reform is reviewed. Concerns About ESOP Legislation Many remain mindful and watchful that tax law doesn t directly or inadvertently harm ESOPs and/or S corps as deficit reduction continues. In the context of tax reform, large pass-through entities should be taxed as C corporations, with large was defined as more than $50 million of receipts by the Treasury Department. This suggestion has been raised by the Department of Treasury and Senate Finance Committee Chairman Max Baucus (D- MT), among others. More discussions and committees and sub-committees will take up the issue of tax reform and deficit reduction. More to follow, but some believe specifics will be deferred until after the 2012 elections. Back in Wisconsin/Local Happenings: We continue to encourage ESOP companies to communicate with their representatives. The August recess is a good time to invite a Congressional Member to your company or visit them at their town hall meetings or at other local functions. Make a point to tell your company and your ESOP story they don t know how great an ESOP is until they hear from you! Please let us know your plans for congressional visits or communications. If you have any questions, or would like assistance communicating with your representatives, please do not hesitate to contact one of the Wisconsin Chapter s Government Relations sub-committee members: Sandy Paavola, Chair Lynn Seeger Wendy Yates Enterprise Services, Inc. CC&N Wildeck, Inc. spaavola@esi-enterprise.com lseeger@cc-n.com wyates@wildeck.com 262.646.6490 414-647-3326 262-549-4000

September 2011 Promotion and Expansion of Private Employee Ownership Act of 2011 (S. 1512), a bipartisan bill, was introduced by Senate Finance Committee Members Ben Cardin (D-MD), Pat Roberts (R- KS) and Olympia Snowe (R-ME) to spur employee ownership of private companies. The bill, similar to a measure currently endorsed by a group of 40 Republicans and Democrats introduced earlier this year in the House of Representatives as H.R. 1244., is meant to encourage owners of S corporations to sell their stock to an ESOP and eliminates barriers that businesses and their owners currently face in establishing a new S Corp ESOP. Among the provisions in S. 1512 are measures that will: Permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984; Establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs; Permit a small business, S or C, eligible for Small Business Administration (SBA) programs to continue its eligibility after becoming majority owned by an ESOP if employee demographics remain the same. Business owners have applauded the bipartisan legislation as a strong show of support for employee ownership. We strongly recommend you contact your state senators and ask them to support this legislation. While both HR 1244 and S 1512 have been referred to committee, it is important that both Senators and House Members know you want them to support these measures. Congressional Visits Several ESOP companies headquartered or with offices in Wisconsin met with Congressional leaders in Washington DC recently. Included were Sentry Equipment, Hatco, Dexter/Apache, and HDR. They met with staffers from Tammy Baldwin and Jim Sensenbrenner s offices. While they appeared to be interested in co-sponsoring ESOP bills before congress, the staff members were not in a position that day to make a commitment. Of special note, the group also met with Congressman Paul Ryan. A strong supporter of ESOPs and influential as a senior member of the House Ways and Means Committee and Chair of the House Budget Committee, he addressed concerns raised by the group regarding his Budget, which calls for reform/discontinuance of all tax expenditures, which technically would include S-Corp ESOPs. The Congressman indicated that he supports S-Corp ESOPs and that such tax items are near the bottom on the list of issues/concerns.

Congressman Ryan strongly suggested that ESOP companies continue to promote ESOPs: keep telling your story and educating Members of Congress through visits to Capitol Hill and invitations to your companies. He indicated that while he understands what ESOPs are about, many of his colleagues do not. Congressman Ryan wants other members to visit ESOP companies so they can experience was he has seen during such visits. We note that, given his leadership role on the House Budget Committee, he would not be expected to cosponsor the current pro-esop bill before the House. We encourage ESOP companies that means YOU to communicate with their congressional representatives. Make a point to tell your company and your ESOP story they don t know how great an ESOP is until they hear from you! Whether it be an invitation to your company or visit them at their town hall meetings or at other local functions. You can visit your individual representative s website; many have section that lists a mobile calendar or when they will be in the local area. The Wisconsin chapter website has many tools to assist you, including a Quick Guide for Congressional Visit, a current legislation listing, and other resources here on this website. Please let us know your plans for congressional visits or communications, and if you ve already made contacts this year already, let us know that too! Your Wisconsin Chapter government relations committee will be following up with you soon. In the meantime, feel free to contact any one of us. Sandy Paavola, Chair Lynn Seeger Wendy Yates Enterprise Services, Inc. CC&N Wildeck, Inc. spaavola@esi-enterprise.com lseeger@cc-n.com wyates@wildeck.com 262.646.6490 414-647-3326 262-549-4000