Countering Negative ESOP Coverage with the Facts

The New Retirement Drama: ESOPs is an editorial/article about Bear Stearns and ESOPs:

• It starts by discussing the sale of Bear Stearns and its impact on employees. While stating that this situation is different than Enron, it asks, "How will retirement savings held in Employee Stock Ownership Plans (ESOPs)--such as the one at Bear Stearns--fare if more companies disappear into the mortgage morass."
  
  
• The article then discusses how employees owned 30% of the company (without putting the 30% in proper context), and appears to imply that most or all ESOP participants in the entire ESOP universe are concerned about their ESOP retirement savings.
  
  
• It then appears to imply that the Bear Stearns sale could cause future problems for companies using ESOPs as a retirement savings tool: "Observers say it's too early to determine if the Bear Stearns debacle will force other companies to reconsider ESOPs as a retirement savings tool, or if employees will call for change, but there is a precedent."
  
  
• The article concludes with another statement suggesting that Bear Stearns is causing other companies to reconsider their ESOPs: "And you can be that other ESOPs will closely follow the outcomes to determine if they need to rethink their plans."
  
  
• The article also discusses concerns about being Too Concentrated in Employer Stock ("Employees must diversify their retirement holdings. And companies must help them.") However, in the very next sentence the article concedes "That's starting to happen" and cites some positive Employee Benefit Research Institute (EBRI) company stock trends.

In other words, the article focuses on lumping Bear Stearns and ESOPs together without looking at all of the facts. It then brings up diversification as another concern before conceding that the issue is improving. To get a more complete picture, consider the following:

• The ESOP only held 3% of the company stock.
  
  
• Bear Stearns is not like Enron. Enron employees had 401(k) plans that were heavily invested in company stock. The Bear Stearns ESOP was 22% of the company's total retirement assets and was funded by the company.
  
  
• Studies have shown that a typical ESOP participant has about three times the total retirement assets of a non-ESOP participant.
  
  
• Studies have shown that ESOP companies are more likely to have another diversified retirement plan than non-ESOP companies.
  
  
• A typical ESOP participant has diversified assets about equal to those of the non-ESOP participant.
  
  
• 401(k) participants, on average, hold significantly less company stock in their accounts than they did in 1996 - "In 2006, average holdings of company stock in 401(k) plans amounted to 11 percent of total assets, down from 19 percent in 1996…Because primarily large, publicly traded companies tend to offer company stock in their 401(k) plan, only 3 percent of 401(k) plans offer company stock as an option…"7.3 percent of 401(k) participants have 90 percent or more of their 401(k) assets in company stock, while 44.5 percent have no company stock at all"

Negative Media Coverage

Bear Stearns and Negative Media Coverage expands on the ongoing negative media coverage:

Well, once again, Enron comparisons are running rampant. As you have probably heard, Bear Stearns, which is in the process of being acquired by JP Morgan Chase, had an ESOP. Bear Stearns' stock ownership among employees was no where near the level of Enron (estimates put the size of the ESOP around 3%), employees had much diversification in their primary retirement plan, a 401(k) plan, and the stock ownership was primarily among the top executives and senior executives. However, these facts have not changed the media's view and while most of the stories are now revolving around the buyout and what will happen to the stock, there are still a few negative references to the ESOP and employees' retirement savings.

The Employee Ownership Foundation post compares the media coverage to the Tribune Company buyout and discusses what the ESOP community should do when they see negative media pieces.

Ongoing Coverage

Stay current on the ongoing Bear Stearns/ESOP coverage by checking our Bear Stearns Information Page.