ESOPs Grow Significantly in 2007

New NCEO estimates show that ESOPs and ESOP-like plans added over $250 billion in assets in 2007 and added about 700,000 participants. The net number of plans grew more slowly, adding about 120 plans.

The table below shows comparative data:

There is no scientific way for us to assess why there was such as large increase in the value of plan assets, but our experience, and that of plan advisors, points to a few trends. First, the market itself generally went up in 2007, with gains of 6% to 10% depending on the index used. ESOP companies tend to perform better than other companies, so some additional growth in asset value and employment would come from that. Most important, however, is the striking trend in the last few years for ESOP companies to do acquisitions. This would increase the value of plan assets and the number of participants at a potentially rapid rate. The relatively slower growth in net plans is a result of the interaction of terminations (running about 3% of plans per year, somewhat below the termination rate for other defined contribution plans but high enough given the number of existing ESOPs to offset many of the new plans being established). On the other hand, many companies are becoming de facto "new" ESOPs because they are being purchased by an existing ESOP company.

How We Derived the Numbers

The numbers are necessarily estimates. First, we looked at all the Department of Labor Form 5500 filings for the most recent years available (2006 for some plans and 2005 for others). These data provided a baseline number for plan assets, plan participants, and number of plans. The data are subject to reporting errors, so we cannot call our projections anything other than reasonable estimates. Then we used IRS data on the number of letters of determination for new plans and plan terminations. These numbers, unfortunately, appear subject to serious reporting errors and inconsistencies, but the relationship between terminations and new plans seem fairly consistent. Using that data, and input from plan providers on trends on new plan formation, we made a conservative estimate of how many net plans were added in 2006 and 2007 that would not have been picked up in the Department of Labor data.

We defined ESOPs to include plans that filed as ESOPs, stock bonus plans, and profit sharing plans primarily invested in company stock. There were 530 profit sharing plans so invested with about $50 billion in assets and 630,000 participants. While these profit sharing and stock bonus plans are not technically ESOPs, functionally there are few differences, especially for participants.