ESOPs and Company Stock Matches to 401(k): The Bear Stearns Lesson

March 18, 2008

Charley Blaine hit the nail on the head with his observation about the Bear Stearns’ fallout appearing  in his posting MSN moneyblog:

My guess is that Bear Stearns’ 14,000 employees will be the biggest losers. The company’s employee-stock-ownership plan owned 23% of the shares as of Feb. 14. The shares that day had a market value of $2.18 billion. It’s almost gone now. Needless to say, Bear Stearns employees aren’t happy. Check here for a sampling of their anger.

ESOPs and matches in company stock have long been touted as aligning incentives, but this selling point can lead to litigation when the company stock takes a dive or the employer files for bankruptcy protection. It’s even more disastrous for employees who have been “incentivized” to put so many of their retirement eggs in one basket. If the company tanks, an employee loses a job and a big chunk of retirement savings.

A statistical profile of Employee Ownership as published by the National Center for Employee Ownership estimates the number of plans, participant employees and asset value for ESOPs and 401(k) plans with significant company stock matches. For early 2008, the estimates are as follows:

Type of Plan

Number of Plans
(as of early 2008)

Number of Participants
(as of early 2008)

Value of Plan Assets
(as of early 2008)

ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock


11.2 million

$928 billion+

401(k) plans primarily invested in employer stock


1.5 million

$133 billion

The prevalence of company stock based incentives may make employees nervous in light of the high profile failures. Human Resources may need to manage expectations in its recruiting and retention activities.