ESOPS Going the Way of DBPs

Warning: ERISA speak ahead.

Jerry Kalish at the Retirement Plan Blog reports that employee stock ownership plans (ESOPs) are becoming scarce.  Somewhat like the much-maligned traditional defined benefit pension plans (DBPs):

Most of the media attention has been on the decline of defined benefit pension plans. That is, for large companies. Defined benefit plans are alive and well for small business owners. And in the same vein - but at a much faster pace - large publicly traded companies are terminating their ESOPs.

According to Corey Rosen, Executive Director of the National Center for Employee Ownership in his recent Employee Ownership Update, one third of the largest 900 companies that had ESOPs in 2004 (the Fortune 500 and the Russell 400) had reduced the stock held in the plan to zero or close to it by the end of 2005. Corey thinks that this a direct result of concerns about legal fallout from the Enron, WorldCom, RiteAid, and other "stock drop" lawsuits that began earlier in the decade.

Interesting stuff. We wrote about the proliferation of stock drop ERISA litigation here. The question remains whether there will still be larger companies that think ESOPs are still worth the candle.  And as Jerry points out, ESOPs are still doing fine with privately-held companies as they provide an exit strategy for company owners.

PS