ESOPs are growing in popularity among businesses around the United States. They allow company owners to transfer ownership to employees by distributing stock, creating excellent retirement benefits and promoting stability and longevity for the company. Both Eagle Alloy and Eagle Precision have ESOPs in place.

ESOP stands for "Employee Stock Ownership Plan," and encompasses any program that transfers company stock from owners to employees within the scope of the IRS definition of "ESOP." ESOPs function similarly to 401(k) plans, but in ESOPs all contributions come from employers in the form of either cash or stock, while 401(k) contributions often come from both employers and employees. Employees who receive ESOP benefits are much more likely to retire in comfort, with three times the assets as comparable employees in non-ESOP companies. As of 2018, approximately 6,500 ESOPs were in effect across the United States, covering around 14 million people.

More specifically, the ESOP at Eagle Alloy is unleveraged, as opposed to leveraged or issuance. In unleveraged ESOPs, company owners contribute directly to the plan in order to transfer ownership to employees over time. Leveraged ESOPs can speed up the process, but include interest and additional fees. Issuance ESOPs are less common, and involve issuing new stock instead of contributing company profits to the plan. Through our unleveraged plan, employees must be with the company for 5 years to be fully vested. If they leave the company before the 5-year mark, they will receive a portion of their ESOP share based on our vesting schedule.

Each year, Eagle Alloy may make contributions, either in stock or in cash, to an employee stock ownership trust. These investments are then held by the trust, and stock can gain or lose value based on financial performance of the company. Since stock value depends on company performance, employees are empowered to help increase the value of the plan by working efficiently and effectively. Between 2012 and 2016, company stock rose in value by over 18%.

"What's surprising is that over 30% of Americans have nothing saved at all for retirement, but with ESOP and 401(k) investments, I will have a very comfortable retirement," says Jim Smith, Sr., a recent retiree from Eagle Alloy's engineering department. The primary purpose of Eagle Alloy's ESOP is to enable our employees to share in the growth and prosperity of the company, and to give participants an opportunity to accumulate retirement capital. All employees are eligible to participate in the plan after they have completed 1,000 hours of service (approximately six months) and they are over the age of eighteen. "Having control over the future and the profitability of this company," Smith continues, "is a great asset for all of us who work here at Eagle Alloy."

The plan also provides a pathway for current owners to transition ownership to the next generation. Rather than sell the company outright or organize a succession, they decided to organize an ESOP. According to Eagle Alloy Co-Chairman of the Board, John Workman, “The ESOP we felt was the best option for Eagle Alloy to be here and thriving in 50 years and benefiting the employees that made it a success."

For more about Eagle Alloy's ESOP, watch our video: