New Study on Financial Security & Employee Ownership Amid Crises

Thoughtware Article Published: Feb 22, 2022

The National Center for Employee Ownership (NCEO) recently released a study on behalf of Employee-Owned S Corporations of America measuring the financial impact of employee ownership during times of crisis. The study analyzed retirement account balance data from December 2019 (pre-pandemic) to December 2020 (height of pandemic) for more than 300,000 retirement plan filings covering more than 43 million employees. This data set included S corp employee stock ownership plans (ESOP) and a comparable group of companies offering a Section 401(k) plan. 

Based on the results of the study, below are a few key findings:

  • Businesses with an ESOP in existence before the pandemic provided greater financial security and job retention for employees heading into and during the pandemic.
  • Going into the pandemic, the average ESOP account balance was more than double the average 401(k) account balance at comparable non-ESOP companies ($132,000 ESOP balance versus $64,000 401(k) balance). This creates an estimated $67,000 more in retirement security for ESOP participants after controlling for company size, industry, and region.
  • The average yearly employer contribution to an ESOP was 2.6 times that of companies offering a 401(k) ($6,567 employer ESOP contribution versus $2,507 employer 401(k) contribution).
  • Employer contributions accounted for about 94 percent of all the contributions to ESOPs, compared to 31 percent for 401(k) plans.
  • Controlling for company size, industry, and region, companies that are ESOP-owned retained or added an additional six employees from 2019 to 2020, compared to non-ESOP employers. 
  • In addition, nearly 80 percent of S corp ESOPs also offer a 401(k) plan. 

In conclusion, the study found measurable evidence that having an ESOP in place prior to times of crisis not only helped employee-owners weather the storm of uncertainty but also provided growth opportunities compared to their non-ESOP counterparts. In addition, employee ownership provides a higher level of financial and retirement security for employees than employees with just a traditional 401(k) option. 

To learn more about ESOPs, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.

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