Advising The Business Market

New Analysis Finds Exceptional Retirement Savings & Job Security For Employee-Owners

Data shows that the S ESOP model provide substantial added benefits

A new study from Ernst & Young reveals new findings on the efficacy of S ESOP strategy in retirement savings. Access the full report here.

WASHINGTON, April 27, 2022 /PRNewswire/ — A new analysis by Ernst & Young (EY) finds that employee-owners of privately held businesses called “S corporations” (S ESOPs) benefit from far better retirement savings and job security compared with other U.S. workers.

The analysis – which EY conducted on behalf of the Employee-Owned S Corporations of America (ESCA) – examines trends in S ESOP retirement plans from 2002 through 2019, including S ESOP plans’ net asset value, number of participants, average account balances, and distributions to participants.

EY’s key findings include:

  • S ESOP assets and participants grew significantly since the beginning of the millennium, and assets grew faster than participants, leading to higher assets per participant.
  • S ESOP employee-owners saw returns at rates higher than the stock market.
  • S ESOPs distributions to employee-owners, typically when they retire, totaled more than $77 billion from 2002-2019.

An individual employee-owner participating in an S ESOP gets nearly $26,000 each year as an added benefit. This figure takes into account firm contributions, increased job security, and growth in S ESOP assets.

“Time and again, data show that the S ESOP model provides substantial added benefits to hardworking Americans who are able to be owners of their businesses,” said Stephanie Silverman, President and CEO of ESCA. “From amassing significant retirement savings to enjoying outstanding job security and more, employee ownership of private businesses has a proven track record of helping American workers and businesses thrive, even in the most challenging of climates.”

Business Incentives Needed

At a time when financial stability and retirement security are at the top of Americans’ minds, Silverman added, “our elected leaders should seize the opportunity to encourage the creation of more S ESOP companies. The U.S. House took a helpful step in this direction by including a partial incentive for business owners to transition to employee ownership in the bipartisan SECURE Act, aimed at increasing retirement savings, which passed with overwhelming bipartisan support last month. We are hopeful that the U.S. Senate will include a similar incentive in their own bipartisan retirement savings legislation.”

EY’s findings build on a growing body of data and research demonstrating the valuable benefits of employee ownership to American workers and businesses.

A recent study by the National Center for Employee Ownership (NCEO) found that employee ownership of private businesses through employee stock ownership plans (ESOPs) provided exceptional resiliency and financial security in the face of pandemic-driven economic challenges. In reporting on the study, NBC News noted that while record numbers of Americans have quit their jobs in what has been dubbed the “Great Resignation,” workers at employee-owned private businesses are “staying put and reaping rewards” in a sharp contrast with the “deep disaffection among workers” at many traditional companies.

Excerpts from the report: Contribution of S ESOPs to participants’ retirement security and employee-owner benefits

while record numbers of Americans have quit their jobs in what has been dubbed the "Great Resignation," workers at employee-owned private businesses are "staying put and reaping rewards" in a sharp contrast with the "deep disaffection among workers" at many traditional companies...

The total cumulative return per participant on average for S ESOPs from 2002 through 2019 was over $300,000 (Figure ES – 1) for a compound annual growth rate of 12.1% or approximately a third higher than returns from the S&P 500 over this time period.

Over the same time period the S&P 500 Total Returns index grew at a compound annual rate of approximately 9%. This measure of S ESOP returns includes cumulative distributions and the growth in the value of net assets, net of cumulative contributions.

► The role of S ESOPs in enhancing retirement security grew. Both net assets and the number of employee-owners rose significantly between 2002 and 2019. Net assets were 678% higher in 2019 ($94 billion) than in 2002 ($12 billion) and the number of participants increased by 286%, from 244,000 in 2002 to 941,000 through 2019.

► The average S ESOP account balances was over $100,000 in 2019. The average increased 100% from 2002, and the average S ESOP account balances was higher than any previous point in the last 15 years.

► S ESOPs were particularly prevalent in manufacturing, professional, scientific and technical services, and construction. Manufacturing accounted for 26% of net assets in 2019 and 30% of distributions from 2002-2019. Professional, scientific, and technical services accounted for 25% of net assets in 2019 and 21% of distributions from 2002-2019. Construction accounted for 15% of net assets in 2019 and 12% of the cumulative distributions from 2002-2019.

► Distributions to participants totaled over $77 billion from 2002 through 2019, and annual distributions increased almost thirteen-fold during this period. S ESOPs contributed to the retirement security of their participants and their contributions continued to grow with 2019 levels at an all-time high.

► S ESOPs provided higher distributions per participant than 401(k) plans. Post-Great Recession, the average S ESOP distribution was $1,350, or 24%, more than the average 401(k) distribution

► S ESOP companies were more likely to offer two retirement plans than all private sector companies were to offer a single retirement plan in 2018 (latest available). 100% of S ESOPS offered at least one retirement plan and 57% of S ESOP companies offered an additional retirement plan, such as an additional defined benefit and/or defined contribution plan, while only 51% of all private establishments offered any retirement plan.

► Employee-owners received an estimated annual benefit of more than $25,900 from working for an S ESOP company in 2019. Approximately 30% of those benefits came directly from working for S ESOPs in the form of firm contributions to employee-owners’ S ESOP account balances and increased job security. The remaining share was from returns in employee-owners’ S ESOP account balances.

A 2021 survey by John Zogby Strategies also found that workers at employee-owned S corporations (S ESOPs) reported being on significantly more stable financial ground than other U.S. workers during the COVID-19 pandemic.

To read EY’s full findings, visit here.

To learn more about the Employee-Owned S Corporations of America (ESCA), visit here.



SOURCE Employee-Owned S Corporations of America