Can Congress Save the Savings of American Workers?

A crisis in American savings is underfoot. Before the pandemic took hold, 12 percent of adults lacked the ability to cover an unplanned, $400 expense. Since COVID-19, a third of middle-income Americans have had to use money from retirement and other savings to pay their bills.

By the fall, 36 percent of Americans who typically save money said they could no longer save as much. But the real impact on everyday Americans’ savings has yet to hit. The CARES Act’s early COVID relief provided much-needed loan forbearance to keep people from defaulting on mortgage, car and student loans. But it is only for a time.

Across the nation, Americans will be forced to confront crippling amounts of debt: By last fall, U.S. households had racked up $14.35 trillion in loans – a ten-year high. The largest portion of that debt, of course, is in mortgages, and approximately 2.8 million homeowners had mortgage loans in forbearance as of November of last year. Between February and June, the share of auto and credit card loans in forbearance had also doubled. Even during this period of forced lenience for borrowers, a third of middle-income Americans report they have to use their savings to pay their bills.

With so much debt coming due, and the newly installed 117th Congress considering next steps to ameliorate the economic fallout of the coronavirus pandemic, there is a premium on taking targeted action to preserve and promote the financial security of everyday American workers.

While the government cannot replenish lost savings or offer permanent loan forbearance, Congress can clear a path for more stable jobs that are likely to build workers’ economic security. A steady stream of research shows those are the kinds of jobs held by employees who share in the ownership of their companies. Immediately after the Great Recession, a study by Phillip Swagel and Robert Carroll concluded private companies held by an employee stock ownership plan, or “ESOP,” weathered the downturn far better than their competitors because, with aligned worker/management goals, they were financially stronger. Workers at ESOP-owned companies perform better, and so do their companies, helping to grow the company’s value.

When an ESOP company’s value goes up, the value of its workers’ shares does too. The National Center for Employee Ownership reports that ESOP participants – including those paid the lowest wages – have twice the retirement savings of average Americans. That type of job-based financial security is just what the doctor ordered, especially now when the country is ailing so badly.

new paper by Jared Bernstein, a member of President Joe Biden’s Council of Economic Advisers, queries why more ESOPs do not exist, given their job and wealth-accumulation benefits. Among the answers, Bernstein finds, is that many business owners thinking about retiring or selling find the cost and work of creating an ESOP – hiring lawyers and finance experts, and often loaning much of the sale price to the company to buy itself – not worth it.

Today, two decades since laws permitting ESOPs to own private S corporations were enacted, there are only 3,000 ESOP-owned private companies in America. There could be so many more. Given that these ESOPs generate about $14 billion each year in savings their employees would not otherwise have, according to a University of Pennsylvania study, Congress should waste no time in looking for ways to create more of them, just as Bernstein suggests.

Last Congress, bipartisan legislation was introduced in the House and Senate to eliminate hurdles company owners face to creating ESOPs. Advancing that measure – which was ultimately cosponsored by 92 members of Congress, including nearly half of the House and Senate tax-writing committees – is a significant step to creating the stable, economically secure jobs our employees need in times like these.

After years of record low unemployment, in the wake of COVID-19, the Congressional Budget Office now projects that U.S. unemployment will average 6.1 percent through 2030 absent policy interventions. Our workers, and our economy, cannot afford that kind of job instability and the economic havoc it will wreak on livelihoods, families and savings. There are steps Congress can take to shore up jobs and the financial safety nets of our workers, now and for generations into the future. Making more of them into owners of their companies – participants in a proven form of shared capital – is one proven way to get there.

Stephanie Silverman is the president and chief executive officer of the Employee-Owned S Corporations of America.

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