Report Finds ESOPs Have Outperformed S&P 500

A report by EY reveals a strong positive return for S corporation ESOPs from 2002 to 2012.

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

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.

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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.

DOL Requests Continued Authority for Fee Disclosure Collection

OMB approval for collection of information about service provider fees and conflicts of interest expires today.

The Department of Labor (DOL) has sent an information collection request to the Office of Management and Budget (OMB) asking for an extension of approval to collect fee information from service providers.

Under section 408(b)(2) of the Employee Retirement Income Security Act (ERISA), certain retirement plan service providers must disclose information about their compensation and potential conflicts of interest to responsible plan fiduciaries.

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The DOL notes that failing to satisfy these requirements may result in a retirement plan receiving services prohibited by ERISA section 406(a)(1)(C), with consequences for both the responsible plan fiduciary and the covered service provider.

OMB authorization for a request to collect information must be renewed every three years: the current approval for this collection is scheduled to expire March 31, 2015. The DOL is asking the OMB to extend its Paperwork Reduction Act (PRA) authorization for three more years, without any change to existing requirements.

The DOL is taking comments about its request until April 30. The text of the request is here.

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