ROCHESTER BUSINESS JOURNAL: A Workplace Retirement Plan We Can Trust

May 29, 2012

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James W. Stenger

A Workplace Retirement Plan We Can Trust

A recent report by the New School underscores that New York is by no means immune to a troubling national trend: The majority of Americans are struggling to afford retirement.  In fact, some two-thirds of New York City workers reported having no retirement plan through their employers in 2009. With half of all Americans reporting the same, we can only expect that Rochester’s workers are also preparing for either increased reliance on Social Security, or more time in the work force with fewer years to enjoy the fruits of their labors.

These new findings unfortunately pile onto others we have heard over the past year. For example, among Americans aged 47 to 65—i.e. baby boomers contemplating retirement—who do have workplace retirement savings plans, more than 40 percent have lost money in them over the last three years. What’s more, over 50 percent will delay retirement because their overall nest egg shrank.

Americans can do better. Grim as these figures may be, there are existing business and policy solutions that can help workers in Rochester and throughout the country to turn things around.

One model—private employee ownership—has proven perhaps most successful. Thousands of workers in the greater Rochester community, including over 3,700 of my colleagues at Lewis Tree Service, are planning for a different kind of future as a result of being an S corporation ESOP (“employee stock ownership plan”). At S ESOPs like ours, all workers have a retirement plan that is funded by their employer, at no cost to the employee. Additionally, research has shown that 80 percent of these S ESOP companies nationwide offer their workers more than one qualified retirement plan.

Drastically contrasting the current picture of America’s retirement security, private, employee-owned companies have been shown to create retirement account balances that are three to five times higher than the average 401(k) or other defined contribution plans, according to the National Center for Employee Ownership. Further, nationally they generate $14 billion in new savings each year for their workers—beyond what they otherwise would have earned—according to a study by the University of Pennsylvania. This is because earnings of the company flow into the ESOP accounts of the workers to be used for retirement.

If ever there were a time to preserve and expand such a structure, it is now. As Americans brace for more years in the workforce and less financial certainty once out of it, a bill has been introduced in Congress to help more businesses thrive under this structure.

This measure, the Promotion and Expansion of Private Employee Ownership Act, supports a simple premise: When employees own the company, they know that its bottom line is their own bottom line. Its success is their success. No doubt, at our 100 percent employee-owned company, we know that the sweat equity we put in today translates directly to our retirement security down the road.

It is also worth noting that, by this same logic, the measure would help create economic returns for the broader economy. Even in tough times, like the recent economic recession, this culture of ownership has led S ESOPs to demonstrate a striking resilience — growing and hiring new workers as their counterparts have been shrinking.

While overall U.S. private employment in 2008 fell by 2.8 percent, employment in S ESOP companies rose by nearly two percent, according to one Georgetown University study. Furthermore, S corporation ESOPs’ higher productivity, profitability, job stability and job growth generate a collective $19 billion in economic value that otherwise would not exist, according to the Penn study.  In the 62 years prior to becoming an S-ESOP our employment grew to approximately 700 employees.  In the 11 years since becoming 100% employee owned our Company has increased its employee base to over 3,700.

In light of the increasingly bleak findings on the state of America’s retirement security, supporting this structure is exactly the kind of action our country—and especially New York—needs right now. We should encourage our representatives to support this bill as one valuable step in reversing the tide on retirement insecurity, not to mention creating high-performing businesses and economic activity.

Employee ownership is helping to secure the futures of thousands in our local community alone. By preserving and expanding the S corporation ESOP structure, we can leave a better legacy for countless more American workers who may also benefit from private employee ownership.

James W. Stenger is Senior Vice President and Chief Financial Officer of Lewis Tree Service, a 100% employee-owned company based in West Henrietta.

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