ESOP Workers Report Higher Retirement Account Balances

The latest survey by the National Center for Employee Ownership (NCEO) surveys the use of employee stock ownership plans (ESOPs) in retirement planning and suggests that utilization of the feature may result in greater retirement security.

The NCEO surveyed 103 executives of ESOP-owned companies, finding that since the benefit plan allows employees to own part of the company they work for, retention among these organizations is much higher than of other companies. According to the research, S ESOP leaders reported voluntary quit rates of their employees at roughly one-third of the national average, at 10% year-to-date (YTD) and also reported lower layoff rates.

Seventy-nine percent of employers “feel they are able to do better than their non-ESOP competitors when it comes to retaining and recruiting employees.” Another 80% said they believe employee ownership helps them manage economic disruptions.

ESOP respondents also estimated that the median account balance across their participants is $80,500, not including other retirement savings vehicles they provide like a 401(k). This compared to $30,000 for the average retirement planning investor with a workplace 401(k) plan.

“The evidence continues to show that employee-owned businesses and their employees are faring better than most, positioning them to better withstand the challenges of a volatile economy,” said Stephanie Silverman, president and CEO of the Employee-Owned S Corporations of America (ESCA), which commissioned the survey. “As business leaders prepare for possible economic uncertainty ahead, ESOP-owned private firms offer a compelling model for positioning workers and companies alike.”

NCEO’s study draws upon previous research by Ernst & Young (EY) that found employee owners of “S corporations” fared better in retirement savings and job security compared to the national public. According to EY, S ESOP participants were found to have received an annual average of $5,900 from 2002 to 2019, while 401(k) plans distributed an annual average of $4,700.

The study’s release also comes soon after the introduction of bipartisan legislation by U.S. Senators Ben Cardin (D-MD) and Steve Daines (R-MT). Known as the “Promotion and Expansion of Private Employee Ownership Act of 2023,” the bill would provide better incentives for employee ownership, offer technical assistance for employers wanting to offer ESOPs, ensure small businesses that become ESOPs retain their SBA certification; and create an advocate for employee ownership at the Department of Labor (DOL).

As seen in 401k Specialist and written by Amanda Umpierrez.