Studies show that private corporations with employee stock ownership plans (ESOPs) create jobs, spur economic growth, and provide significant retirement savings for their workers. S ESOPs can supply workers with retirement savings through company contributions of employer’s stock, at no cost to the worker. Congress authorized the S corporation ESOP structure to encourage and expand retirement savings by giving millions of American workers the opportunity to have equity in the companies where they work.
In a recent study by Alex Brill, tax advisor to the Simpson-Bowles deficit reduction commission, S ESOPs are shown to be powerful job creators and job savers. The study included a review of S ESOPs over the last 10 years and Brill observed that “employee commitment leads to increased profitability, which in turn allows companies to grow at a faster rate because they can invest more, hire more workers and increase output.” And despite the lackluster labor growth in America overall, S ESOPs have proven to be resilient in difficult economic times. In fact, from 2001 to 2009, surveyed S ESOP firms increased their net employment by over 60 percent, while total private, nonfarm employment fell.
This study, and others before it, continue to show that S corporation ESOPs provide savings and stability, even during tough times. A 2008 University of Pennsylvania study found that S corporation ESOPs contribute $14 billion in new savings for 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. The study also found that S corporation ESOPs’ higher productivity, profitability, job stability and job growth generate a collective $19 billion in economic value.
According to the National Center for Employee Ownership, S corporation employee stock ownership plans are powerful savings vehicles, establishing retirement account balances that are three-five times higher than the average 401 (k) plan. Additionally, 80% of S ESOP companies even offer their workers more than one qualified retirement plan, according to a study by Georgetown University. But what is special about S ESOPs is that the savings plans are fully funded by the employers, not the workers.
In this new economic reality, S ESOPs offer workers good, stable jobs. When it comes to retirement security, S ESOPs provide what is increasingly a rare opportunity for a secure company-funded retirement. As Congress considers deficit reduction and tax reform measures, Members must be careful not to jeopardize what has been an eminently successful structure.