Studies Show the Positive Impacts S Corporation ESOPs Have on the U.S. Economy

November 15, 2012

Home News Studies Show the Positive Impacts S Corporation ESOPs Have on the U.S. Economy

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.

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