Data & ResearchMarch 31, 2015

Report Finds ESOPs Have Outperformed S&P 500

Private employee stock ownership retirement plans (here limited to S corporation ESOPs) outperformed the S&P 500 in terms of total return per participant by 62% from 2002 to 2012, according to a study by EY.

Reported by Noel Couch

Research by EY’s quantitative economics and statistics (QUEST) practice reveals the total return for an average S corporation ESOP participant over the decade was $99,000, implying an 11.5% compound annual growth.

Steve Smith, Employee-Owned S Corporation of America (ESCA) chairman, explains S corporation ESOPs are improving retirement readiness for workers and providing economic benefits to communities. Findings show strong and continuing growth in net assets, distributions, average account balances and number of participants with accounts, he adds.

“S ESOPs are a model for how to make retirement security a reality for the broad American middle class,” Smith notes. He is also vice president of the General Counsel of Amsted Industries, a manufacturer of industrial components that offers an ESOP to its employees.

The study reports between 2002 and 2012 net assets increased over 300% and the number of participants with account balances rose 165%, from 240,000 to 650,000. Additionally, distributions to participants totaled nearly $30 billion, paying more benefits per participant than 401(k)s.

S corporation ESOPs are a type of defined contribution retirement plan established by Congress in the late 1990s, the report notes. The vast majority of U.S. companies owned by employees through ESOPs are majority or wholly-owned. Bipartisan legislation is scheduled to be introduced in the House and Senate to encourage more private companies to convert to ESOPs, according to the report.

For more information, visit www.ESCA.us.