August 1, 2012
Effective January 1, 1998, the U.S. Congress passed new laws to enable U.S. employees to own Subchapter S companies where they worked through an employee stock ownership plan (or “ESOP”). Today, there are numerous S corporation ESOP companies operating in every state in the nation, in industries ranging from heavy manufacturing to retail grocery stores, from construction to consulting.
In establishing S corporation ESOPs, Congress was careful to ensure that the benefits of this ownership structure extend to the rank-and-file employees of the S corporation. As a result, S corporation ESOPs have become perhaps the most effective retirement savings plan under federal law.
While nearly 60 percent of working Americans do not have any employer-sponsored retirement savings plan, all employee owners do have a plan, and that plan is wholly funded by their companies. Indeed, at a time when most Americans have precariously low savings, employee owners in S corporation ESOPs report that their ESOP account balances are three to five times higher than the U.S. average for 401(k) plan participants, according to the National Center for Employee Ownership (“NCEO”).
As the stories here demonstrate, employee owners of S corporations across the country are more invested in their companies’ success, are less likely to quit or be laid off, and are more prepared economically for retirement than their counterparts in U.S. industry. The results for employees who own these companies, for the companies themselves, and for the economy as a whole are truly remarkable.
Employee-owned S corporations accomplish exactly what Congress intended them to do: providing retirement security for millions of American workers, who otherwise might not have the ability to provide for themselves in retirement, while also creating jobs and economic activity in their high-performing businesses. It is imperative to retain this retirement savings vehicle that works as Congress intended.
