S Corporation ESOPs are a Force in Providing Retirement Security to American Workers

August 12, 2014

Home News S Corporation ESOPs are a Force in Providing Retirement Security to American Workers

Last Thursday, the Federal Reserve Board released results of the 2013 Report on the Economic Well-Being of U.S. Households. The findings, based on more than 4,100 responses from people ages 18 and up, provide a snapshot of the self-perceived financial and economic well-being of U.S. households and insight into topics related to personal finance, including retirement savings.

The results of the study revealed a lot about the current state of retirement planning in the United States. The most shocking statistics? One in five people who are near retirement age have zero money saved. Overall, 31 percent of people said they have no money saved for retirement and do not have a pension. That includes 19 percent of people between the ages of 55 and 64.

Washington Post reporter Jonnelle Marte shed some light on the findings of this annual study in a recent Wonkblog article. Marte says the study offers, “a stark reminder that as more Americans are made responsible for their own retirement, most are not saving nearly enough.”

That’s because most Americans either do not have access to a retirement savings plan or are relying on a defined contribution plan like a 401(k). These findings remind us why it is so critical to expand the S ESOP structure, which was established specifically to encourage employee ownership and expand retirement savings.

As we know, the S corporation ESOP structure is a qualified defined contribution plan that provides workers with retirement savings through their investments in their employer’s stock, at no cost to the worker. Over the years, S ESOPs have significantly expanded the pool of US workers who are saving for retirement, while simultaneously boosting company productivity

According to a 2012 study by Alex Brill, tax advisor to the Simpson-Bowles deficit reduction commission, S corporation ESOP companies provide substantial retirement savings for their employee-owners, even at a time when most comparable companies did not. Despite the difficult economic climate, the S corporation ESOP companies surveyed by Brill increased contributions to retirement benefits for employees by 19 percent, while other U.S. companies increased their contributions to employee retirement accounts by less than 3 percent.

In a survey of ESCA companies, the National Center for Employee Ownership found that S ESOPs are a major force in providing retirement security to workers, and some 80 percent of ESCA companies offer their employees more than one qualified retirement plan. Further, S corporation employee-owners on average have retirement account balances three to five times higher than the U.S. average for 401(k) plan participants.

The Promotion and Expansion of Private Employee Ownership Act of 2014 (H.R. 4837), would help more Americans attain a secure retirement through incentivizing S corporation ESOPs. ESCA has worked with a bipartisan group of  Members of Congress  on this bill which would  further promote employee ownership. ESCA encourages you to take a look at the Federal Reserve Board’s findings and see for yourself how big an impact S ESOPs could have on Americans’ retirement security – we think it’s undeniable.

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