The Employee Ownership Update
April 1, 2015
U.S. Secretary of Labor Thomas Perez Explores Employee OwnershipOn March 18, U.S. Secretary of Labor Thomas Perez hosted a group of 16 experts on employee ownership for a discussion titled "Not Just the Bottom Line: New Strategies for Inclusive Prosperity." The group included people with a wide variety of perspectives on employee ownership, ESOPs, and other forms of stock plans, including representatives of ESOP and other companies and critical voices from academia, the plaintiffs' bar, and elsewhere. Loren Rodgers participated on behalf of the NCEO.
Earlier that day, when the Secretary spoke at hearings of the House Committee on Education and the Workforce (see 1:27:31 to 12:29:10), he responded to a question about ESOPs by saying "ESOPs are a very effective way of helping people, whether it's the cashier at the grocery store or the owner of the grocery store, giving them the opportunity not only to build a nest egg but [to have] skin in the game....I think it can lead to a sense of shared prosperity. I look forward to working...to see if there is public policy we can undertake that can help expand and promote a model that I think has had real success in building wealth for working people across the country."
The meeting included vigorous discussions about the impact of employee ownership on companies and employees, ESOPs as retirement plans, ownership culture and employee inclusion, challenges around the role and identity of the ESOP trustee, the impact of stock-option expensing, and the role for employee voices in governance.
New Report on the Impact of S Corporation ESOPsA new analysis of the economic impact of S corporation ESOPs released yesterday examines trends in account balances, distributions to participants, total return, and the existence of other retirement plans. The study, performed by EY's Quantitative Economics and Statistics (QUEST) practice for the Employee-Owned S Corporations of America (ESCA), uses data from the Department of Labor and other sources. Its findings include:
Supreme Court Asks Solicitor General for Brief in RJR Employer Stock CaseThe Supreme Court may take up another employer stock case this year. It has asked the Solicitor General to prepare a brief in the case Tatum v. RJR Pension Inv. Comm., in which the Fourth Circuit Court of Appeals ruled that the standard for the fiduciaries of RJR's 401(k) plan should be whether a prudent fiduciary "would have" made the same decision, not, as the district court ruled, "could have."
The case involved the elimination of two previously frozen company stock funds as investment options in the company's 401(k) plan. Between 1999, when the funds were frozen, and 2000, when the plan was eliminated, the value of company stock had dropped sharply. The plaintiff sued after the stock later recovered sharply. The district court ruled that the plan committee had acted improperly in eliminating the plan, spending just one hour making the decision, and therefore was required to show that its decision was prudent in light overall fiduciary obligations.
The Fourth Circuit ruled the "could have" standard was too lenient and that the "would have" standard has been widely applied by other courts in a number of fiduciary contexts. That standard asks if, given all the evidence from an appropriate investigation, a prudent fiduciary would have made the same choice. The "could have" standard would mean that a much broader range of choices could still be considered prudent.
Many Households Have No Retirement Account AssetsA new report by Nari Rhee and Ilana Boivie for the National Institute for Retirement Security says that 45% of working-age households have no assets in retirement accounts. The 40 million households without retirement plan assets are especially common among lower-income households, and the authors conclude that "account ownership rates are closely correlated with income and wealth" (p. 1). The median value in retirement accounts for all households headed by a working-age adult is $2,500. For "near-retirement households" (those headed by people aged 55 to 64), the median is $14,500, meaning that 62% of such households have retirement assets less than one year's current annual income.
Upcoming Employee Ownership MeetingsTwo upcoming meetings on employee ownership may be of interest:
- On April 8, the University of Wisconsin's Center for Cooperatives will host a meeting for economic developers and others titled Employee Ownership: A Business Retention Strategy. The meeting will include an optional tour of Isthmus Engineering and presentations by a number of compelling speakers, including NCEO board member Mary Stenvig.
- On April 29, the Ohio Employee Ownership Center's 29th annual conference will take place in Akron. The conference features 17 breakout sessions on technical, educational, strategic, and management topics, and keynotes by Mary Ann Beyster (Foundation for Enterprise Development) and NCEO board member Steve Baker (Great Game of Business).