October is employee ownership month.
As of 2018, the United States had 5,505 Employee Stock Ownership Plan ("ESOPs") with 1.7 million participants.[1] There are 1,164 401(k) ESOPs ("KSOPs") with over 12 million participants.[2] California alone has 804 ESOPs totaling over 1 million participants.[3] ESOPs exist primarily in the services and manufacturing sectors, however, the transition to an ESOP can work with any type of company with motivated employees.
Nearly 80% of U.S. businesses are owned by people over the age of 45. The majority of these businesses do not have a succession plan in place for when the owner chooses to retire. With the oncoming wave of retirees, succession planning is more important than ever. The solution that preserves jobs and offers the most success for employer and employee alike is a transition to employee ownership. Employee ownership has been shown to create stable jobs and incentives for employees to bring their best to their work.
Congress has realized this and several states have already begun their own programs to foster employee ownership among their businesses. On August 13, 2018, the 2019 National Defense Authorization Act (N.D.A.A.) was signed by the President of the United States. It is the fastest N.D.A.A. passed by Congress in twenty years, with large bipartisan support. Congress has recognized the need for expanded employee ownership in the U.S., and coupled with the oncoming retirement void, ESOPs present the perfect balance between retirement and succession planning, and expanding business ownership among citizens of the U.S.
Studies conducted by the National Center for Employee Ownership, as well as the Rutgers School of Management and Labor Relations further show that employee owned companies fare better in an economic downturn than non-employee owned companies.
If you have any questions about ESOPs, the law firm of Butterfield Schechter LLP is here to help. Butterfield Schechter LLP is San Diego County's largest law firm focusing its law practice on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.
[1] https://www.nceo.org/articles/esops-by-the-numbers#1
[2] A KSOP combines an ESOP and a 401(k). The assets are concentrated into the company stock and allow the company to avoid the extra expenses of running and ESOP and a 401(k) separately. https://www.investopedia.com/terms/k/ksop.asp
[3] According to data provided by the National Center for Employee Ownership. https://www.nceo.org/articles/esops-by-the-numbers#1
