ICYMI: ESOPs ‘Have Helped Workers & Employers Alike’

For Immediate Release:

February 8, 2022

Home News ICYMI: ESOPs ‘Have Helped Workers & Employers Alike’

WASHINGTON – “Employee stock ownership plan (ESOP) participants are better off than those who work for non-ESOP companies with [only] a 401(k) plan, and the benefit can serve as a retention tool for businesses, as well as a cushion for employees to be more financially resilient in a crisis,” PlanAdviser reports, citing a newly released study showing how ESOPs “have helped workers and employers alike throughout the COVID-19 pandemic.”

PlanAdviser continues:

“Before the pandemic, the average ESOP account balance at an S-corporation ESOP was more than double the average account balance at a comparable conventional firm. In 2019, the average ESOP account balance was $132,362, compared with $63,925 for the average 401(k) account balance. The [study] also found that the average yearly employer contribution to the ESOP was 2.6 times more than that of companies offering [only] a 401(k) ($6,567 vs. $2,507); 94% of total contributions to ESOPs came from the employer, compared with 31% of employer contributions for 401(k) plans; and having an ESOP was associated with retaining or adding an additional six employees from 2019 to 2020, compared with non-ESOP employers.”

The new study – conducted by the National Center for Employee Ownership (NCEO) on behalf of the Employee-Owned S Corporations of America (ESCA) – finds strong, measurable evidence that having an employee stock ownership plan (ESOP) in place prior to the worst of the Covid-19 crisis helped employee-owned businesses not only to survive but also take better advantage of growth opportunities than their conventional, non-ESOP counterparts.

The study’s key findings include:

  • Businesses with an ESOP in place providedgreater financial security for employees heading into and during the pandemic, and job retention at the firm level compared to comparable conventional firms.
  • The average ESOP account balance going into the pandemic was dramatically higher – more than double –than the average 401(k) account balance ($132,000 vs. $64,000) at a non-ESOP company.
  • Controlling for size, industry, and location simultaneously, the S ESOP advantage is an estimated $67,000 more in retirementsecurity – especially remarkable, given that just over half (50.5 percent) of American families have a retirement account at all. Among those that do, the median account value was $65,000.
  • The average employercontribution to the S ESOP was more than 2.5 times that of companies offering only a 401(k), and 94 percent of total contributions to ESOPs came from the employer, compared to 31 percent for 401(k) plans.
  • Notably, most ESOP companies also offer traditional retirement benefits such as a 401(k), in addition to providing employees with an ownership stake in the business as a benefit of employment.
  • Using active participants as a proxy for employment, and controlling for company size, industry, and region, being an ESOP is associated with retaining or adding an additional 6 employees from 2019 to 2020, compared to non-ESOP employers.

Last week, NBC News also reported on the study’s findings, noting that even during a time of record resignations economy-wide, workers at employee-owned private businesses are “staying put and reaping rewards” in a sharp contrast with the “deep disaffection among workers” at many traditional companies.

  • To read the new study’s full findings, CLICK HERE.
  • To learn more about the Employee-Owned S Corporations of America (ESCA), CLICK HERE.

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