A new study by the National Center for Employee Ownership (NCEO) finds that employee ownership of private businesses through employee stock ownership plans (ESOPs) provided exceptional resiliency and financial security in the face of pandemic-driven economic challenges.
The study – which NCEO conducted on behalf of the Employee-Owned S Corporations of America (ESCA) – finds strong, measurable evidence that having an ESOP in place prior to the worst of the crisis helped employee-owned businesses not only to survive but also take better advantage of growth opportunities than their conventional, non-ESOP counterparts.
Drawing on objective data from 310,857 plan filings, NCEO analyzed retirement plan data from 2019 and 2020 from S corporation ESOPs and a comparison group of companies offering a 401(k) plan. Their analysis found that employee ownership provided critical financial and retirement security for employees and resiliency for these S ESOP businesses when compared to non-ESOP companies.
NCEO’s key findings include:
- Businesses with an ESOP in place provided greater financial security for employees heading into and during the pandemic, and job retention at the firm level compared to comparable conventional firms.
- The average ESOP account balance going into the pandemic was dramatically higher – more than double – than the average 401(k) account balance ($132,000 vs. $64,000) at a non-ESOP company.
- Controlling for size, industry, and location simultaneously, the S ESOP advantage is an estimated $67,000 more in retirement security – especially remarkable, given that just over half (50.5 percent) of American families have a retirement account at all. Among those that do, the median account value was $65,000.
- The average employer contribution to the S ESOP was more than 2.5 times that of companies offering only a 401(k), and 94 percent of total contributions to ESOPs came from the employer, compared to 31 percent for 401(k) plans.
- Notably, most ESOP companies also offer traditional retirement benefits such as a 401(k), in addition to providing employees with an ownership stake in the business as a benefit of employment.
- Using active participants as a proxy for employment, and controlling for company size, industry, and region, being an ESOP is associated with retaining or adding an additional 6 employees from 2019 to 2020, compared to non-ESOP employers.