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Business Journals
3 days ago
- Business
- Business Journals
The rise of employee ownership: Why construction companies are choosing ESOPs
More than half of U.S. businesses with employees are owned by people at or near retirement age, making succession planning an increasingly important priority. When it's time to exit a business, owners typically choose from a few paths: keeping it in the family by passing it down to the next generation, selling to a strategic buyer looking to expand or pursuing private equity. But each year, a few hundred companies take a different route: the use of an employee stock ownership plan, or ESOP. The team at insurance brokerage Holmes Murphy has seen rising interest in ESOPs, particularly in the construction industry. Today, construction companies represent approximately 16% of all ESOPs, according to the National Center for Employee Ownership (NCEO). In 2022 alone, more than 292 new ESOPs involving over 31,000 participants were created. These plans now cover nearly 15 million employees nationwide. "When an owner wants to prioritize taking care of employees and continuing the company culture they've built, an ESOP becomes a really good fit,' said Ross Ingersoll, a client executive with Holmes Murphy who specializes in working with ESOPs. 'You have heavy civil construction firms that have large equipment fleets,' said Ted Jorgensen, a client executive in the surety area for Holmes Murphy. 'To have a small group of people try and buy a company with a large equity position is nearly impossible. Because an ESOP goes to a larger group, it can be a viable fit for having enough equity to transition the firm efficiently.' To establish an ESOP, a trust is created that serves as a retirement benefit plan for the company's employees. The trust buys the business from its existing owners and gives employees ownership shares over time. By taking this route, company founders can create a financial exit for themselves while ensuring their business continues to live on — stewarded by the employees who helped build it. ESOPs also come with a significant tax exemption for the company. Keys to ESOP success for construction companies Shifting all or part of a company's ownership to an ESOP is a complex transaction that requires careful planning to create a successful outcome. While he has worked on ESOP transactions that were completed in eight months from start to finish, Jorgensen said most such moves require years of careful planning and a team of professional advisors, including attorneys, CPAs and trust specialists. One client's CPA even recommended members of the selling family work with a therapist to ensure everyone was on the same page regarding how the shift would impact them and their futures. 'It's going in eyes wide open and making sure you're having all of the tough conversations,' Jorgensen said. There are many nuances when it comes to establishing an ESOP, including navigating ERISA law, unlocking tax-advantaged mechanisms, optimizing the debt structure the company will take on, and education for the new employee owners on what becoming an ESOP means. 'To have long-term sustainability with an ESOP, it's critical that qualified professionals are being engaged in various aspects of the initial transaction and moving forward,' Ingersoll said. 'You want to make sure that the next generation of leadership is set up for success when taking over from the selling shareholders, that the company will continue to perform at a high level, and that everyone is rowing in the same direction.' With the cyclical nature of construction, it can be helpful to work on diversifying the company's revenue stream ahead of a transaction, Jorgensen said. 'If current market conditions change for a specific sector, that can be detrimental to the company's ability to pay off the debt incurred through the ESOP,' he said. Finally, employees need to start thinking like owners. The selling business leaders can help cultivate this perspective ahead of the transaction by working with employees to develop the leadership and financial skills they will need under the new model. 'They're good employees, but are they good entrepreneurs and leaders?' Jorgensen said. 'Do they have the right leadership and mindset to make sure they can deal with the challenges of a construction firm in 2025 and beyond?' Beyond the buyout: Securing a legacy and building long-term value When done correctly, an ESOP creates a solid financial exit for the business owner and sets the company's new employee owners up for future financial success. According to the NCEO, ESOPs paid out more than $175 billion to participants in 2021. Some have even created significant windfalls for employees. When the private equity firm Warburg Pincus bought the software company Vermont Information Processing for approximately $1 billion in February, for example, workers who were part of the company's ESOP received distributions based on their tenure in the plan. An estimated 300 people received more than $1 million, while 50 people received approximately $10 million. Like traditional stock options, the opportunity of an ESOP can help a business attract and retain top talent in a competitive labor market. The programs give employees a long-term stake in the company's success, often boosting productivity and organizational culture. A 2023 study by the NCEO, for example, found that employees in an ESOP are about three times less likely to quit than the average U.S. worker. 'It bolsters employee recruitment and retention and rewards those employees and communities,' Ingersoll said. 'It's a powerful tool of perpetuation that is lesser known, but for the right company, it makes a lot of sense.' ESOPs provide many financial and personal opportunities for businesses and its stakeholders, but the structure itself creates risks that must be proactively managed. An insurance partner who understands ESOPs is essential to align risk management philosophies and insurance programs to tailor safeguards for your protection so that your ESOP does not turn into a liability. Learn more about how Holmes Murphy can help. Lauren Lawley Head is a freelance writer with The Business Journals Content Studio.
Yahoo
4 days ago
- Business
- Yahoo
NYC man lost $114,000 — his entire 401(k) — after his physical check from Paychex was stolen and cashed
Dylan Handy did everything right — or so he thought. Two years ago, when he was 33, Handy tried to roll over his $114,000 401(k) after switching jobs. Instead of a secure digital transfer, Paychex sent paper checks. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) Unfortunately for Handy, those checks were intercepted and fraudulently cashed. 'This outdated and insecure method remains standard practice in the retirement industry,' Handy told The New York Times. The kicker? Handy wasn't even told electronic transfer was an option. And more importantly, he may now owe taxes on a stolen account. So why are retirement plan administrators still using physical checks? And how can you protect your money and avoid ending up in a situation similar to Handy's? A 2024 survey by Capitalize revealed just how many people still deal with paper checks during rollovers — a whopping 43%. Americans are running out of patience. More than 80% of savers say rolling over a 401(k) should be as simple as making a bank transfer. But for those stuck with the manual process, it often means phone calls, long wait times and a lot of uncertainty. So why are plan administrators holding on to this outdated method? Physical checks persist because of legacy systems, regulatory concerns and a lack of standardized digital options. In Hardy's case, he's now in federal court suing Paychex after months of getting nowhere with banks and no reimbursement for the bulk of his lost savings. His lawyer argues Paychex is responsible. Paper checks in 401(k) rollovers expose savers to serious risks, including: Fraud and theft: Physical checks are easier to intercept, alter or cash without authorization. Delays and inconvenience: Mailing checks, waiting for them to clear and making sure they reach the right hands can take weeks — sometimes months. Capitalize found that 42% of savers experienced rollovers that took two months or more. Lack of transparency: Tracking paper checks and resolving problems can be a nightmare. In fraud cases, figuring out who's responsible and recovering money is often a complex, drawn-out process. Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says — and that 'anyone' can do it While protections like the Employee Retirement Income Security Act (ERISA) exist, they are limited. There's only so much liability coverage. If a check is stolen and cashed by someone else, blame may fall on the issuer, the accepting bank or the account holder. Sorting that out can take a long time. And even when a claim is valid, banks may take up to 90 days to respond. That you could be without your retirement funds for months. With check fraud and scams on the rise, protecting your money during a 401(k) rollover is more important than ever. Here are a few smart steps to keep your savings safe: Work with a qualified advisor: Make sure any financial advisor you consult is a Certified Financial Planner™ who's legally required to act in your best interest. The right advisor can help you avoid shady products and high-pressure sales tactics. Opt for direct transfers: Whenever possible, ask your 401(k) provider to transfer funds directly to your new retirement account. It's faster and more secure. Use secure mail: If a paper check is your only option, request certified mail with tracking. This cuts down the chance of interception. Monitor your accounts: Check your accounts regularly for suspicious activity. If something looks off, report it immediately. Stay informed: New scams pop up all the time — from fake self-directed IRAs to bogus investment platforms. The more you know, the easier it is to spot red flags. Check fraud isn't going away, so it's up to people saving for retirement to stay alert and take action. Even though some protections are in place, being proactive is your best defense. Your retirement money deserves better than a risky, outdated process, it deserves your full attention. Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now This is how American car dealers use the '4-square method' to make big profits off you — and how you can ensure you pay a fair price for all your vehicle costs Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
NYC man lost $114,000 — his entire 401(k) — after his physical check from Paychex was stolen and cashed
Dylan Handy did everything right — or so he thought. Two years ago, when he was 33, Handy tried to roll over his $114,000 401(k) after switching jobs. Instead of a secure digital transfer, Paychex sent paper checks. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) Unfortunately for Handy, those checks were intercepted and fraudulently cashed. 'This outdated and insecure method remains standard practice in the retirement industry,' Handy told The New York Times. The kicker? Handy wasn't even told electronic transfer was an option. And more importantly, he may now owe taxes on a stolen account. So why are retirement plan administrators still using physical checks? And how can you protect your money and avoid ending up in a situation similar to Handy's? A 2024 survey by Capitalize revealed just how many people still deal with paper checks during rollovers — a whopping 43%. Americans are running out of patience. More than 80% of savers say rolling over a 401(k) should be as simple as making a bank transfer. But for those stuck with the manual process, it often means phone calls, long wait times and a lot of uncertainty. So why are plan administrators holding on to this outdated method? Physical checks persist because of legacy systems, regulatory concerns and a lack of standardized digital options. In Hardy's case, he's now in federal court suing Paychex after months of getting nowhere with banks and no reimbursement for the bulk of his lost savings. His lawyer argues Paychex is responsible. Paper checks in 401(k) rollovers expose savers to serious risks, including: Fraud and theft: Physical checks are easier to intercept, alter or cash without authorization. Delays and inconvenience: Mailing checks, waiting for them to clear and making sure they reach the right hands can take weeks — sometimes months. Capitalize found that 42% of savers experienced rollovers that took two months or more. Lack of transparency: Tracking paper checks and resolving problems can be a nightmare. In fraud cases, figuring out who's responsible and recovering money is often a complex, drawn-out process. Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says — and that 'anyone' can do it While protections like the Employee Retirement Income Security Act (ERISA) exist, they are limited. There's only so much liability coverage. If a check is stolen and cashed by someone else, blame may fall on the issuer, the accepting bank or the account holder. Sorting that out can take a long time. And even when a claim is valid, banks may take up to 90 days to respond. That you could be without your retirement funds for months. With check fraud and scams on the rise, protecting your money during a 401(k) rollover is more important than ever. Here are a few smart steps to keep your savings safe: Work with a qualified advisor: Make sure any financial advisor you consult is a Certified Financial Planner™ who's legally required to act in your best interest. The right advisor can help you avoid shady products and high-pressure sales tactics. Opt for direct transfers: Whenever possible, ask your 401(k) provider to transfer funds directly to your new retirement account. It's faster and more secure. Use secure mail: If a paper check is your only option, request certified mail with tracking. This cuts down the chance of interception. Monitor your accounts: Check your accounts regularly for suspicious activity. If something looks off, report it immediately. Stay informed: New scams pop up all the time — from fake self-directed IRAs to bogus investment platforms. The more you know, the easier it is to spot red flags. Check fraud isn't going away, so it's up to people saving for retirement to stay alert and take action. Even though some protections are in place, being proactive is your best defense. Your retirement money deserves better than a risky, outdated process, it deserves your full attention. Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now This is how American car dealers use the '4-square method' to make big profits off you — and how you can ensure you pay a fair price for all your vehicle costs Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Labor Dept. drops Biden-era ESG fiduciary rule
This story was originally published on ESG Dive. To receive daily news and insights, subscribe to our free daily ESG Dive newsletter. The Department of Labor informed the Fifth Circuit Court of Appeals Wednesday that it will abandon the Biden administration's rule allowing pension plan fiduciaries to consider ESG factors and other 'collateral benefits' in tiebreaker situations, according to court documents. A lawyer with the Department of Justice's civil division appellate staff said in a letter that 'the Department has determined that it will engage in a new rulemaking on the subject of the challenged rule.' The new rulemaking process will be included in the Trump administration's spring regulatory agenda, according to the May 28 letter. The Biden administration's rule was challenged by a coalition of 26 Republican-led states, though had thus far held up in the face of litigation. The Labor Department asked for a temporary pause in the legal proceedings last month as it weighed rescinding the rule. A judge granted a 30-day pause, directing the agency to provide an update on what further actions it planned to take, with Wednesday's filing representing the government's response. The Biden administration's Labor Department finalized the rule, 'Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,' in 2022, and it has been in effect since January 2023. At the time, the agency said the rule overturned guidance from the first Trump administration which had a 'chilling effect' on fiduciaries. The rule allowed retirement plan fiduciaries to consider ESG and other collateral benefits to break a tie when two or more investments 'equally serve' the financial interests of the plan and it would be imprudent to invest in both or all options. The Republican-led states leading the lawsuit have argued that the rule runs afoul of the Employment Retirement Income Security Act of 1974. However, a federal district court judge has twice ruled that the rule was permissible. Texas Northern District Court Judge Matthew Kacsmaryk first dismissed the lawsuit in September 2023, though that ruling relied on the now-overturned Chevron doctrine. After hearing arguments in the case, the Fifth Circuit later remanded the case back to Kacsmaryk for a ruling in light of that change. Kacsmaryk again ruled that the rule does not violate ERISA in February. While the planned timeline for a new rule proposal will be unknown until the administration releases its regulatory agenda, the May 28 court filing said the Department of Labor 'intends to move through the rulemaking process as expeditiously as possible.' Recommended Reading State of the Labor Dept. ESG rule in a post-Chevron landscape Sign in to access your portfolio
Yahoo
5 days ago
- Business
- Yahoo
Bitcoin and XRP could potentially be included in 401(k) plans
Bitcoin and XRP could potentially be included in 401(k) plans originally appeared on TheStreet. The U.S. Department of Labor has withdrawn its 2022 guidance that warned fiduciaries against including cryptocurrency in 401(k) retirement savings plans, the Department's Employee Benefits Security Administration announced on May 28. The 2022 guidance urged fiduciaries to exercise 'extreme care' while they consider adding a crypto option to a 401(k) retirement plan for participants. The Employee Retirement Income Security Act (ERISA) doesn't mention the 'extreme care' standard, so the 2022 directive marked a departure from ordinary fiduciary principles, the Labor Department noted. Jackson Chainwright, a pseudonymous crypto strategist and Substack author, said the move could quietly mark a turning point for crypto in retirement planning. 'This won't make headlines like an ETF approval, but it opens the backdoor. Fiduciaries now have less reason to avoid crypto, and that's going to matter when the next bull cycle makes Bitcoin and XRP too big to ignore.' Prior to 2022, the Labor Department usually articulated a "neutral approach" to particular investment types and strategies. The latest withdrawal of the 2022 guidance makes a return to the department's historically principled approach — neither endorsing nor disapproving of any fiduciaries planning to include crypto assets in a 401(k) plan. ERISA nonetheless requires a fiduciary to curate a plan's investment menu to maximize risk-adjusted financial returns to the plan's participants and beneficiaries. 'The Biden administration's department of labor made a choice to put their thumb on the scale,' Labor Secretary Lori Chavez-DeRemer said in a statement. 'We're rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not DC bureaucrats.' Earlier, the department asked fiduciaries to be cautious while considering crypto for 401(k) plans because of an array of reasons, such as the Securities and Exchange Commission (SEC) identifying crypto as "speculative and volatile investments," plan participants finding it difficult to make informed investment decisions, custody concerns, crypto valuations, regulatory concerns, etc. Matt Hougan, CIO at Bitwise, pointed out that the $9 trillion sitting in U.S. 401(k) accounts currently has near-zero crypto exposure. 'That will change,' he wrote on X, hinting at a coming shift in retirement investing. Bitcoin and XRP could potentially be included in 401(k) plans first appeared on TheStreet on May 29, 2025 This story was originally reported by TheStreet on May 29, 2025, where it first appeared.
