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The Employee Ownership Update

Corey Rosen

July 27, 1997

(Corey Rosen)

New NCEO Estimates on the Number of Employee Ownership Plans

The New Figures

The NCEO now estimates that there are approximately 10,700 employee stock ownership plans (ESOPs) and stock bonus plans in the U.S. covering 8.7 million participants. We estimate that approximately 850 plans were set up in 1994, and a like number in 1995 and 1996. In addition, there are approximately 2,000 profit sharing and 401(k) plans investing primarily in employer stock covering about 2 million participants. Aside from qualified plans, we estimate there are at least another 2,000 companies that offer stock options to most or all employees and that these plans cover an additional five million workers.

The NCEO estimates are based on a variety of sources and are most reliable for the ESOP/stock bonus plan data. There the numbers come from the U.S. Department of Labor's (DOL's) actual count through 1993 and projections based on Internal Revenue Service (IRS) determination letters in subsequent years. The DOL numbers are based on filings from Form 5500, which all ERISA plans, including ESOPs and stock bonus plans, are required to file. Despite the requirement, some plans fail to file or get overlooked in the DOL count, so these numbers are probably somewhat conservative. The latest DOL numbers are for 1993. For 1994, we used the IRS letters or determination data, the most current such data available. Plans should, but do not have to, obtain a letter of determination when they are adopted. Moreover, some ESOPs and stock bonus plans are conversions from other plans and would not show up as initial determinations. We have made an adjustment for these based on conversations with consultants about what the likely impact these factors would have. For 1995 and 1996, we have made estimates based on the level of activity informally reported to us around the country. These estimates are necessarily preliminary and subject to revision, but provide a number that is probably "in the ballpark."

The ESOP/stock bonus plan numbers are then adjusted downward for expected terminations to provide the net number of plans. We use a 4% annual termination rate, based on a late 1980s GAO study. No more current data are available, but we do not believe this rate would change much.

The data for the other plans are based on research projects here and elsewhere and do not provide trend data. The 401(k) and profit sharing plan data come from a number of nationwide surveys by benefit consulting firms as well as a 1995 study by Douglas Kruse and Joseph Blasi at Rutgers for the NCEO.

The stock options plan data are the most tentative. They are based on a 1996 survey by the NCEO of stock option plan consultants and from data on individual companies we obtain from a variety of sources, including a nationwide clipping service. The largest stock option plan companies are relatively easy to identify, because their plan announcement tends to show up in the clipping service. Because the largest 10% of the plans will employ about half the participants (this is true of almost any kind of benefit plan), it is relatively easy to project the number of total eligible employees. The total number of company sponsors, however, is much more difficult, because most plan sponsors are small companies who would usually not show up in newspaper articles. Stock options companies do not have to report to a government agency unless they are publicly traded, in which case their plan information would show up somewhere in their annual reports.

Why These Numbers Differ from Other Common Estimates

Until recently, we estimated there were about 10,000 ESOPs and ESOP-like plans, covering 10 or 11 million participants. (You may see these figures used elsewhere as well.) The discrepancy is due to a few factors. First, in the early 1990s, the IRS stopped issuing letters of determination. Our data until then had been based on these letters only. The estimates these provided through 1992 produced the 10,000 plan, 11 million participant numbers. These numbers were meant to include ESOPs, stock bonus plans, and profit sharing/401(k) plans primarily invested in employer stock. The number for profit sharing/401(k) plans was based on various surveys. In 1996, working with researchers at Rutgers University, we discovered that these estimates involved some double counting. Plans would show up as profit sharing and 401(k) in different surveys when, in fact, they were part of a single merged plan. The study also indicated the percentage of plans primarily invested in employer stock was not as high as the previous surveys indicated.

We also assumed that the Department of Labor numbers were understated because some plans fail to file their 5500 forms. While we still believe there is understatement, we have decided to use the more conservative approach of basing the estimate on the DOL count.

Because we did not have data to make estimates after 1992, we made the assumption that plan terminations would be equal to new plans, an assumption that was only an impression, but the best we could do given the circumstances. The new estimates are based on better numbers, but those using these numbers should be aware that they are only "ballpark" estimates that will be subject to later revision. We have, in fact, been reluctant to make specific estimates because we have been concerned that people would ascribe a greater certainty to them than we have. Because there seems to be so much interest in even a reasonable guess, however, we have decided to put these estimates out again.

For a tabular presentation of our estimates, along with other relevant statistics, see our Statistical Profile of Employee Ownership.

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