Talking Points

ESOPs and Retirement Security

In case you missed this important study:

In December 2018, NCEO researchers Nancy Wiefek and Nathan Nicholson released a study of how ESOPs in S corporations affect workers’ retirement security. The bottom line? Very, very positively. Here’s how the authors summarize their conclusions:

  • ESOP participants represented in this survey have more than twice the average total retirement balance of Americans nationally: $170,326 versus $80,339.
  • This is not just a function of higher-wage ESOP employees driving the average up. ESOP employees making less than $25,000 a year also have on average more than double the retirement savings ($55,526) compared to similar workers nationally ($22,447).
  • Nearly all of the respondent companies (97%) offer at least one other retirement plan in addition to the ESOP. By contrast, 32% of all workers in the U.S. workforce as a whole do not have access to any retirement benefits at work, and 49% of all workers are not participating in the plan that is available to them.
  • Additionally, these S corporation ESOP companies provide an array of benefits at levels solidly higher than firms overall where comparison data exist. These benefits make their own contribution to retirement security because workers are less likely to have to dip into savings for critical investments or expenses, such as tuition, to advance their career or unexpected medical expenses.
  • Among the surveyed S ESOPs, workers nearing retirement have on average a median account balance of $147,522 in their ESOP plus $98,974 in a non-ESOP plan(s). By contrast, more than one-third (35%) of all workers nearing retirement have neither retirement savings nor a defined benefit pension. This percentage rises to 50% among low-income workers in this age bracket.
  • National data place the median account balance of all U.S. workers 55-64 years old at zero. Even among workers who have retirement accounts, the median balance nationally is $100,000.
  • A typical millennial worker (25-34 years old) at a surveyed S ESOP company has a median ESOP account balance of $22,588 and a median balance of $11,239 in a non-ESOP account. In contrast, the median savings of U.S. millennials is zero.
  • Among the surveyed S ESOPs, lower-wage employees ($10.00 to $12.85 per hour) typically have median account balances in their ESOP of $4,381 and in a non-ESOP plan of $2,149. In contrast, nationally, 56% of workers in this category do not have access to any retirement benefits at work. This translates into a median savings for this group of zero.
  • Finally, ESOPs are clearly associated with reduced turnover. Respondent companies report quit and separation rates that are more than two times lower than national rates.
Nancy Weifek

Most of the respondent companies are large (more than 1,000 employees) and 100% owned by their ESOPs. It is important to keep in mind that respondents self-selected to take part in the survey and cannot be considered a representative sample of all S corporation ESOPs. Still, the demographics of the respondents are not limited to just one industry, size, location, or performance category. More importantly, the strength of the findings reported here, even if on the highest end of the continuum, are more than enough evidence to point to the power of S ESOPs for all workers, not just the highest earners.

The full report is available here.