ESOP Benefits Plan Sponsors and Participants

Employee Stock Ownership Plan (ESOP) participants are better off than those who work for non-ESOP companies with a 401(k) plan, and the benefit can serve as a retention tool for companies, as well as a cushion for employees to be more financially resilient in the event of a crisis, according to a study by the National Center for Employee Shareholding (NCEO).

The document, titled “Measuring the impact of ownership structure on resilience in the event of a crisislooked at how companies have handled the COVID-19 pandemic and the impact it has had on attendees. The research was conducted using data from the Department of Labor (DOL) Form 5500 Company Pension Plans.

“Given the nature and purpose of ESOPs and the forward-looking corporate culture that often accompanies them, there is strong reason to believe that having an ESOP in place before the worst of the crisis has helped companies not just survive but, for many, take better advantage of growth opportunities than their conventional counterpoints,” the document states.

The document analyzed more than 300,000 plan filings that cover more than 43 million employees.

ESOPs offer workers a stake in their business in the form of stock. Plan sponsors can enjoy various tax benefits by using ESOPs, and plans are subject to similar Employee Retirement Income Security Act (ERISA) rules that non-ESOP 401(k)s face.

The NECO research asked if there is significant evidence that ESOPs have measurable advantages over similar conventional businesses without ESOPs.

“Overall, we find measurable evidence of this resilience in greater financial security for employees before and during the pandemic, and continued employment at the enterprise level compared to comparable conventional enterprises,” indicates the document.

Before the pandemic, the average ESOP account balance at an S corporation ESOP was more than double the average account balance at a comparable conventional business. In 2019, the average ESOP account balance was $132,362, compared to $63,925 for the average 401(k) account balance.

The paper also found that the average annual employer contribution to the ESOP was 2.6 times greater than that of companies offering a 401(k) ($6,567 vs. $2,507); 94% of total ESOP contributions came from the employer, compared to 31% of employer contributions for 401(k) plans; and having an ESOP was associated with retaining or adding six more employees from 2019 to 2020, compared to non-ESOP employers.

Previous research has supported the conclusion that ESOPs provide benefits to both employees and employers.

Additional research, completed at the beginning of last year, found evidence that employee ownership was a powerful buffer for workers during the pandemic. A survey by John Zogby Strategies found that employees of non-ESOP companies have suffered greater job losses or downsizing than employee-owned companies, and the financial security of workers at non-ESOP companies has suffered. more affected.

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