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The Employee Ownership Update

Corey Rosen

March 1, 2005

(Corey Rosen)

ESOPs Have Higher Rate of Return Than 401(k) Plans

According to data from the Department of Labor's Private Pension Plan Bulletin 2004, the rate of return for ESOPs with more than 100 participants during the 1990s was about 10% better than for 401(k) plans with more than 100 participants. The 1999 data are the most recent available from the DOL's Form 5500 analysis. Given that ESOPs are not as diversified as 401(k) plans, they should have a higher rate of expected return for any individual company to compensate for greater risk. On the other hand, many of these plans are leveraged, and their rates of return have to overcome initial debt.

Quad/Graphics Creates Innovative Health Solution: In-House Clinics

Quad/Graphics, based in Pewaukee, Wisconsin, is substantially owned by its 12,000 employees through a profit sharing plan. Known as one of the nation's most innovative and participative companies, Quad/Graphics recently made the front page of the Wall Street Journal (February 11, 2005) for its in-company health care clinic. The company hires doctors and nurses who see each patient for not less than 30 minutes. The doctors help employees focus on wellness as well as treatment of medical conditions. While Quad spends a lot more on primary care than other companies, it spends a lot less on hospitalization, reducing overall health costs, bringing net costs down. Better yet, employees are measurably healthier by a wide margin than the general population, partly because doctors' pay is based not on how many patients they see (as in most health care systems) but how well the patients do who they do see. Measures such as the percentage of pregnancies resulting in Caesarian sections, the number of people with high blood pressure treating it, and other benchmarks can be compared to national norms to see how Quad employees are doing. Doctors like working in the system because they can focus more on helping the patient than in other environments. The program has been so successful that Quad is now selling the system to other companies.

ESOP Diversification Elections Vary Widely

ESOP companies must provide participants the option to diversify up to 25% of the stock in their accounts when they reach age 55 and have 10 years of plan participation. This increases to 50% at age 60. According new NCEO survey data, a majority of employees choose not to diversify. In 31.5% of companies responding, fewer than 10% of employees diversify; in 17.4%, 10% to 20% diversify; in 16.1%, 25% to 50% diversify; in 10.1%, 50% to 75% diversify; and in 24.8%, more than 75% diversify.

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