The Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University School of Management and Labor Relations conducted an original study to examine employee stock ownership plans (ESOP) and their ability to build assets for low- to moderate-income employees and their families. Funded by the W.K. Kellogg Foundation, the study attempts to answer the question, “Can ESOPs contribute to building the assets of low- and moderate-income employees?”
The study, entitled “Building the Assets of Low and Moderate Income Workers and their Families: The Role of Employee Ownership,” includes interviews with 195 employee owners from 21 companies located in 16 states ranging from 75 to 18,000 employees. It was conducted from June 2015 through August 2018. The primary interviewees included women and people of color with at least 15 years of tenure. The study defines assets to include varying forms, such as home ownership, cash savings, inheritances, vehicles, retirement accounts (stocks and bonds), education, job skills, good health and support. Below are some key findings:
- The national 25th percentile of retirement savings for those low- to moderate-income employees with ESOPs was $113,325 ($23,825 401(k) and $89,500 ESOP), while the 25th percentile of savings for low- to moderate-income employees without an ESOP was $10.
- Of the low- to moderate-income workers with an ESOP account, those ages 60 to 64 have more than 10 times the median savings of employees nationally.
- Women in ESOP-owned companies reported gaining confidence and leadership skills through training and attendance at conferences. By gaining more confidence, women employee owners could advocate for various certificates that enabled them to advance within companies normally requiring a college degree.
- Many employee owners expect to transfer asset wealth to their children during retirement. This is a break in the cycle, as these same individuals reported having to support their own parents during retirement. The median wealth of Latino ESOP employees interviewed is nearly 12 times the wealth of the national median for Latino households. Similarly, black ESOP employees have approximately three times the wealth of black households nationally.
This study indicates that while ESOPs don’t eliminate gender and racial wealth inequality, they significantly reduce the gaps. ESOPs are a powerful mechanism to help build assets in low- to moderate-income employees, as they accumulate without requiring employee contributions that reduce family budgets, aren’t taxed until distributions are paid and don’t count against asset limits for social services for low-income employees.
The full results of the study can be found on Rutgers University's website. To learn more about ESOPs, reach out to your BKD trusted advisor or use the Contact Us form below.