Differences between Bear Stearns and Enron

Yesterday we discussed the Bear Stearns sale and noted how a Wall Street Journal article compared Bear Stearns to Enron. Bear Stearns and Employee Ownership, by Corey Rosen from the National Center for Employee Ownership (NCEO), points out some of the differences between Bear Stearns and Enron:

Bear Stearns is not at all like Enron and some other companies several years ago where employees were heavily or primarily invested in company stock, generally in their 401(k) plans, and were left with limited or no retirement assets after their companies melted down.

• In 2007 the ESOP, which was funded by the company, had $285 million in assets. A profit sharing plan had $300 million and a 401(k) plan had $720 million. Assuming these were the only company provided retirement plans, the ESOP contained about 22% of the total retirement assets and was funded by the company.
  
  
• The ESOP held about 3% of the overall company stock.
  
  
• Employees also purchased stock on their own.
  
  
• The remainder of the company stock that was owned by employees was held in nonqualified plans that are generally used to reward key employees.

The article suggests that we need to put this in the proper context:

It is important to put this in the context of ESOPs overall. These plans currently hold about $925 billion in assets and cover about 11.2 million employees. Over 90% of ESOPs are in closely held companies, where they are often used as an ownership transition vehicle. About 40% of ESOP companies are now majority-owned by their plans, a percentage that is rising.

Studies by academics in Washington State and at Rutgers have shown that the typical ESOP participant has about three times the total retirement assets of a comparable non-ESOP participant in a comparable company, and has diversified assets about equal to those of the non-ESOP employee. The large majority of ESOP companies have at least one other retirement plan and, in fact, are more likely to have a diversified retirement plan (that is, a plan other than their ESOP) than comparable companies are likely to have a retirement plan at all. Unlike 401(k) plans, moreover, ESOPs generally make corporate contributions to all employees who have worked for a year or more, whereas 401(k) plans typically only provide any company contributions to those who defer pay into the plan. ESOP contributions are based on relative pay or a more level formula; 401(k) plans are much more skewed, being based on employee deferrals. The result is that ESOPs are much more egalitarian in their benefit distribution, particularly in providing benefits for lower-paid employees who might get little or nothing from their 401(k).