There are too many reasons to list as reasons why many Americans do not have enough money saved for retirement. Stagnant wages coupled with rising life expectancies, healthcare costs, tuition costs, and housing costs all surely contribute. But, the bottom line is that too many retirees and soon-to-be retirees simply have not accumulated the assets they need.
If you break down that problem—the lack of long-term asset accumulation—there’s good news and bad news. The good news is that companies have the tools to solve this problem. The bad news is that not everyone has equal access to these benefits.
There are three common employee benefits that allow for asset accumulation:
- Pension plans, in which employers contribute to a centrally managed fund
- 401(k)s, in which employees contribute to funds of their choosing
- Employee Stock Ownership Plans, or ESOPs, in which employers form a trust allowing employees to purchase company stock, which is then held in a retirement account
Private sector pension plans have fallen by half since the early ’90s, with only about 4% of private-sector workers having access to a pension today. While pension plans seem unlikely to make a comeback in the private sector, they are at least still common practice in public sector jobs. (And even pensions that are underfunded can be covered by the Pension Benefit Guaranty Corporation.)
The Pew Charitable Trusts found that 35% of private-sector workers over the age of 22 don’t work for a company that offers a 401(k). But a new Department of Labor rule is bent on improving that.
Employee stock ownership, on the other hand, has not had as much institutional support.
As of 2016, the most recent year for which data is available, there were only 6,624 ESOPs in the United States, according to the National Center for Employee Ownership. These plans cover approximately 14.2 million participants, 10.6 million of whom are currently employed and covered by an ESOP. (For context, as of August 2019 there were 132.16 million full-time employees in the United States, according to the Bureau of Labor Statistics.)