Pat Robert, R. Kan., has introduced S. 1589, the Promotion and Expansion of Private Employee Ownership Act of 2017 to increase the availability of ESOP plans for S Corps.
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Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.
August 4, 2017 at 2:31 pm
An unfortunate side effect of ESOPs may be to encourage excessive investment in employer stock.
There is a saying that fortunes are created by concentration but preserved by diversification. But many employees are saving for retirement, children’s education, or to buy a house, and for theses goals wealth preservation is likely to be more important than creation. Yet the ESOP lures employees away from diversified, low-cost saving through mutual funds in IRAs, 401(k)s, or regular accounts. If the employer falls on hard times or goes bankrupt, the employee loses both job and ESOP, where a diversified portfolio would still be there when the job disappeared.
An ESOP may be a good supplement to a portfolio, increasing the employee’s motivation and thus chances of success both for the employer and the employee, but alone an ESOP can be dangerous.
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