Perhaps the most successful, federally created savings initiative to date are employee stock-ownership plans, or “ESOPs,” and particularly ESOPs in private companies where employees otherwise would not have an opportunity to have a ‘piece of the rock.’ These so-called “S corporation ESOPs” have been remarkably effective in enabling employee owners to amass retirement savings. In fact, studies out of the National Center for Employee Ownership and University of Pennsylvania have respectively shown that S corporation ESOP employees have retirement account balances three to five times higher than the average 401 (k) or other defined contribution plans, and they generate $14 billion in new savings each year for their workers beyond what they otherwise would have earned.
By all logic, these employee-owners are not the same workers Gallup surveyed. As owners of their companies, these workers tend to operate with a vested stake in the company’s bottom line and demonstrate striking resilience — growing and hiring new workers, even during the recent recession, as their counterparts have been shrinking. In fact, while overall U.S. private employment in 2008 fell by 2.8 percent, employment in S ESOP companies rose by nearly two percent, according to one Georgetown University study.
Fortunately, a bipartisan group of House Ways & Means members has introduced a measure to allow more S corporation business owners to transfer ownership to their employees and help more companies become S corporation ESOPs. The “Promotion and Expansion of Private Employee Ownership Act” introduced by Representatives Dave Reichert (R-Wash.) and Ron Kind (D-Wisc.), together with four other members of the Ways & Means Committee which oversees tax policy, eliminates barriers that currently exist for companies that want to become employee-owned or expand the employee-ownership stake in their S corporation.
Congress created the S corporation ESOP structure to encourage and expand retirement savings, giving more workers in private companies the chance to own their companies through an ESOP qualified retirement savings program. In light of Gallup’s bleak finding on the state of American retirement, supporting this structure is exactly the kind of action America needs right now.
Greg Klein serves as chairman of the board of directors of the Employee-Owned S Corporations of America. He is vice president and CFO of Inland Truck Parts, an S ESOP company with 500 employees in nine states, headquartered in Overland Park, Kan.