Blue Ridge ESOP Associates Industry News

Turnover Trends and the Demographic Bubble Impact on ESOPs

Posted by Dustin Pirie

Jul 20, 2022 9:30:00 AM


Downgrade graphYou might have heard in recent times the label “Great Resignation”. Since the occurrence of Covid-19 there has been what I refer to as a “reshuffling of the deck”. There has been an increasing rate at which U.S. workers have quit their jobs. Because of the Covid-19 pandemic there has been strong labor demand, low unemployment rates, and competition. Company culture, benefits, pay, and other factors have contributed to workers either staying or leaving their employer. Everyone who has left their employer has their own reason for leaving and sometimes it is out of the control of the employer. However, ESOP companies do have influence and certain levers that can be pulled to retain employees. The NCEO recently completed a data survey that suggests there is considerably lower turnover among ESOPs when compared to their industry’s averages.

When viewing the impact of turnover from an ESOP perspective, generally the higher the turnover the more cost the Company has. Turnover costs the company to hire, train, and implement a new employee. Beyond these basic expenses, an ESOP company has additional expenses. Specifically repurchase liability, which turnover correlates to. Generally, the greater the turnover the more often shares are being repurchased. This can be one of the greatest expenses for the Company. It is important to pay attention to the turnover from a liability viewpoint. When looking at the liability there are a variety of levers that can be pulled. Some of the more common levers include vesting schedule, distribution policy, and repurchase strategy. Each lever might have pros and cons to consider. There isn’t a perfect solution, however there are solutions to give ESOP companies an overall advantage and lower turnover.

Demographic Bubble:

There is an extra layer to the normal turnover problem. In addition to employees leaving for work elsewhere, baby boomers have been retiring. There was a spike in retirements during the early stages of the pandemic, more realized from people ages 66 or older. Like normal turnover, the repurchase liability is dependent on when participants separate employment. It is important to understand the demographic breakdown of employees and where the ESOP shares are allocated. The company can plan for retirements; they are more predictable than a global pandemic.

Demographic Bubble Example:

Below is an example of a demographic breakdown. In this example there are over 51% of the shares in participants accounts who are between the age of 50 and 59. In addition, there is 35% of shares in participants accounts who are over the age of 59. This adds to over 85% of the shares in participants accounts who are nearing retirement. It is common for a company to have a greater portion of shares in older participants accounts. This is a liability in the future that the company should be planning for.

Active Participant Age Groups Percentage of Shares
Less than 30 0.84%
30-39 5.75%
40-49 6.79%
50-59 51.74%
60 or More 34.70%


Intentionally designing the ESOP plan can help. Turnover and retirements can create a significant liability for the company. There are millions of baby boomers retiring each year and companies are still experiencing the impact from higher-than-normal turnover. Understanding the demographic breakdown of shares by age and turnover trends can help to plan for future repurchase obligation. Your plan administrator at BREA can provide more information regarding your company’s turnover and demographics. In addition, BREA offers ESOP repurchase liability services and has ESOPHorizonTM software available to help create your ESOP strategy.