ESOPs Could Be Multi-Trillion Dollar Market

The Principal has introduced a training program and resources to help advisers tap the business-owner market via employee stock ownership plans (ESOPs).

Baby Boomer business owners face a dilemma as they near retirement: nearly 80% of their net worth is tied up in their businesses. The value of that business ownership is about $4.8 trillion dollars, according to a LIMRA study. Financial professionals who are able to help owners convert business assets into investable retirement assets can potentially tap into significant opportunities.

The Principal Financial Group has launched a national training program and a suite of resources to show financial professionals how to do that with ESOPs.    

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ESOPs are qualified defined contribution retirement plans that are primarily invested in company stock. They transform the illiquid asset of company ownership into cash. That cash can then be invested in other vehicles such as mutual funds, insurance, stocks, bonds and other options.

The stock plans free up assets so business owners can diversify investments and fund retirement, according to Jerry Ripperger, director of ESOP consulting at The Principal. “They offer owners a strategy for retiring from the business, and ESOPs can help employees boost their potential retirement savings,” he said. “ESOPs may also generate sizeable assets that can potentially lead to significant sales opportunities for financial professionals.” 

ESOPs help pave the way for other sales opportunities including estate planning for the owner and executives, insurance and potential access to other retirement benefit plans. 

“Financial professionals don’t have to be experts on ESOPs to take advantage of this opportunity,” Ripperger pointed out. An experienced consultant can guide them through the process. The Principal is conducting training around the country and providing resources to help financial professionals look into opportunities with the stock plans.

The resources are located at principalfunds.com/ESOP and include a brief training video for financial professionals. Ripperger’s blog can be read at blog.principal.com.

The Principal Financial Groupprovides retirement services, insurance solutions and asset management.

Health Care Tops Retirement Worries

Looking ahead to retirement, investors have several financial concerns.

A T. Rowe Price survey found the top retirement concerns among investors age 21 to 50 are health care costs (76%), rising taxes (67%), Social Security availability (63%), inflation (61%), long-term care (58%), living too long and running out of money (52%), and housing values (52%).

Only 16% of investors expect to receive full Social Security benefits as currently promised. The remaining 84% expect to receive no Social Security benefits (36%) or some form of reduced benefits when they retire (48%).

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When asked what they are doing differently to prepare for retirement as a result of this Social Security view, the most common responses among the 84%-group were saving more (42%) and planning to work longer (29%); 13% said they are doing nothing about it, 11% said they are investing more aggressively, and 5% said they do not plan to retire.

When asked for ways they are helping their parents or grandparents with financial matters, 19% of investors said they are providing guidance with daily expenses, 15% are providing general retirement planning guidance, 13% are providing direct financial assistance in meeting daily living expenses, and 9% are helping their elders better understand their Social Security options.

For those who provide general retirement planning guidance, only 59% believe their parents or grandparents will have enough money to maintain their desired lifestyle; the remaining 41% believe their elders will not have enough money (26%) or are not sure (15%).

The survey was conducted online in the U.S. by Harris Interactive on behalf of T. Rowe Price, August 8 to 20, among 850 adults age 21 to 50 who have at least one investment account.

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