Release Date: 
08/02/13

The U.S. Department of Labor released data on retirement plans with 100 or more participants that shows ESOPs generally provided a greater aggregate rate of return than 401(k) plans. The average rate of return over the 15-year period from 1996 to 2010 was 6.9% for ESOPs, versus 5.8% for 401(k) plans. Both leveraged and non-leveraged ESOPs outperformed 401(k) plans, though leveraged plans had a higher average return . The report also found that:

  • Data from 1991 to 2010 shows ESOPs outperforming 401(k) plans in 15 years and underperforming in 4.
  • ESOPs outperformed 401(k) plans by the smallest margin in 2006 to 2010 and by the largest margin in the 1990s.
  • The standard deviation for returns to ESOPs was slightly lower than for 401(k) plans; over the 15-year period, it was 12.0% for ESOPs overall, versus 12.3% for 401(k) plans.
  • The return on leveraged ESOPs had less year-to-year variation and lower standard deviations than non-leveraged ESOPs.

Summary results are listed in the table below.

There has been suspicion for sometime that ESOPs were 'too risky' and didn't provide a comparable return to other defined contribution plans.  This research by the DOL bears witness to the success that employee ownership has achieved in provideing company - not employee - funded benefits.  These findings are also consistent with academic research from the Harvard Business Review, Rutgers Univeristy, Northwestern Univerity and Hewitt Associates that show increased growth, productivty and profits in companies with broad-based employee ownership.

The DOL report, titled Private Pension Plan Bulletin Historical Tables and Graphs, was released in November 2012 and you can see more detail in tables E21 and E23.