Key Facts About S ESOPs

What is an S Corporation ESOP?

A Sub-chapter S corporation is a business entity that provides flow-through tax treatment to its shareholders. An employee stock ownership plan (“ESOP”) is a qualified defined contribution plan that provides a company’s workers with retirement savings through their investments in their employer’s stock, at no cost to the worker.

ESOPs are regulated by the Employee Retirement Income Security Act (“ERISA”) just like pension funds, 401(k) plans, and other qualified retirement plans. Congress authorized the S corporation ESOP structure to encourage and expand retirement savings by giving more than a million American workers in all 50 states the opportunity to have equity in the companies where they work.

Key Facts

As shown in the key facts and figures below, today S ESOPs continue to accomplish exactly what Congress intended them to do: create jobs, generate economic activity and promote retirement savings:

Financial Security

Employee-owners are more financially secure and less worried about their economic positions than other American workers.

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Financial Security

Employee-owners are more financially secure and less worried about their economic positions than other American workers.

  • Employee-owners are more than twice as likely to believe their personal financial outlook has improved over the past twelve months compared to their peers and are much less likely to have “a lot” of worry about losing their jobs.
  • Employee-owners feel better prepared to handle major financial obligations such as car payments, mortgages, college costs for their children, and retirement savings.
  • Findings on millennial employees at ESOP companies: (Zogby 2019)
    • They are more likely to set aside for retirement than non-ESOP counterparts
    • 46% have a current net worth of $50,000 or more, compared to 15% of non-ESOP millennial employees.
    • By a factor of 59% to 33%, are more likely to expect to retire between the ages of 55-65
    • 44% said they are not worried about retirement income, compared to 25% of their non-ESOP counterparts
    • 66% say they are better off than their parents, compared with 41% of non-ESOP employees
  • While the percentage of older Americans filing for bankruptcy has increased nearly twofold since the 1990s, ESOP retirees feel three times more secure about their retirement savings than non-ESOP retirees. (Zogby 2019)

Retirement Security

S ESOP companies provide unmatched retirement savings and security to workers.

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Retirement Security

  • S ESOPs contribute $14 billion in new savings to their workers each year beyond the income they would otherwise have earned, and that S corporation ESOPs offer workers greater job stability and increased job satisfaction. (2008 University of Pennsylvania/Wharton School of Business study)
  • S corporation ESOPs’ higher productivity, profitability, job stability and job growth generate a collective $19 billion in economic value that otherwise would not exist. (2008 University of Pennsylvania/Wharton School of Business study)
  • S corporation employee-owners had ESOP account balances three to five times higher than the U.S. average for 401(k) plan participants. (2005 NCEO survey)
  • For S corporation employee-owners nearing retirement, ESOP account balances were five to seven times the average. Some 80 percent of companies surveyed by NCEO offer their employees more than one qualified retirement plan. (2005 NCEO survey)
  • Employees at S ESOP companies have more than twice the average total retirement savings of Americans who work at non-ESOP companies ($170,000 versus $80,339). This is a dramatic contrast with a 2018 Federal Reserve statistic that almost 20% of people near retirement age have no retirement savings. (2018 NCEO report on a survey of ESCA member companies)
  • Nearly all S ESOP companies (97% of those surveyed) offer another retirement plan in addition to the ESOP. (2018 NCEO report on a survey of ESCA member companies)
  • S ESOP companies provide stronger benefits packages to their employee-owners than non-S ESOP companies, which boosts employees’ retirement security as they are less likely to have to dip into savings for medical or education expenses. (2018 NCEO report on a survey of ESCA member companies)
  • 91% of ESOP workers feel they can live comfortably in retirement compared to only 49% of non-ESOP retirees. (Zogby 2019)

Economic Growth and
Job Security

S ESOPs are a major force of economic growth and job security – even and especially in times of economic downturn.

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Economic Growth and
Job Security

  • While total nonfarm private employment in the United States has increased 8 percent since 2002, employment among S ESOPs in continual operation since 2002 has increased an impressive 37 percent. (2017 study x Matrix Global Advisors CEO Alex Brill)
  • As of 2013, there were almost 7,000 ESOPs across every major industry that employ more than 13 million workers.  (Joint ESCA/NCEO study)
  • S corporation ESOPs outperformed the S&P Total Returns Index in terms of total return per participant by an impressively large margin (62%), net assets of S ESOP accounts in the aggregate increased over three-fold, and retirement distributions to workers in S ESOPs totaled nearly $30 billion from 2002 to 2012. (2015 Study by EY’s Quantitative Economics and Statistics practice)
  • By increasing capital ownership, employee stock ownership plans (ESOPs) reduce wealth inequality, and, if plans were to proliferate, more workers across the country would benefit from the equalizing effects of ESOPs. Bernstein’s report also finds that ESOPs do not have the effect of trading employee wages for ownership shares. In fact, the report argues that as employee ownership rises, wage inequality also falls. (2016 Jared Bernstein)
    • Education and awareness about private ESOP structures are the most frequent hurdles to ESOP creation and that private and governmental approaches could “help more retiring business owners access the resources and information they need to fully consider an ESOP for their company,” especially as those owners are considering retiring. (2021 study by Jared Bernstein)
  • The default rate on bank loans to ESOP companies during the period 2009-2013 was, on average, an unusually low 0.2 percent annually. By contrast, mid-market companies in the U.S. typically default on comparable loans at an annual rate of 2 to 3.75 percent. (NCEO 2014) 
  • The number of S ESOPs and the level of active participation (number of employee-owners) have more than doubled since 2002. (Brill 2013)
  • The total output from S ESOPs and the industries they support is nearly 2 percent of GDP. (Brill 2013)
  • S ESOPs directly employ 470,000 workers and support nearly a million jobs in all. (Brill 2013)
  • S ESOPs paid $29 billion in labor income to their employees, with $48 billion in additional income for supported jobs. (Brill 2013)
  • Employment among surveyed S ESOP firms increased more than 60% from 2001-2011, while the private sector as a whole had flat or negative growth in the same period. (Brill 2012)
  • While overall U.S. private employment in 2008 fell by 2.8%, employment in surveyed S corporation ESOP companies rose by 2%. Meanwhile, 2008 wages per worker in surveyed S corporation ESOP companies rose by 6%, while overall U.S. earnings per worker grew only half that much. (Brill 2012)