TRENTON, N.J. – Yesterday, the New Jersey Economic Development Authority (NJEDA) Board approved the Authority’s entry into an agreement with the Rutgers University School of Management and Labor Relations (SMLR), to create educational and informational programming in order to increase the quantity of New Jersey businesses utilizing an Employee Stock Ownership Plan (ESOP). An ESOP is an employee ownership model in which employees retain interest in shares of a company through holding corporate stock in a trust, providing a succession plan for business owners while building wealth for workers.
In 2021, Governor Murphy issued Executive Order 262, which established the Wealth Disparity Task Force and tasked it with examining the causes of, and creating remedies for, the longstanding wealth disparities that affect Black and Hispanic or Latino New Jerseyans. As part of the State Fiscal Year 2024 Appropriations Act, $6 million of funding was allocated to the NJEDA for Wealth Disparity Initiatives based on the work of the Wealth Disparity Task Force. This MOU will be funded through part of that allocation.
“The ESOP model has been deployed successfully by thousands of companies nationally and presents a fantastic alternative for New Jersey businesses looking to solidify their succession plans and offer a family- sustaining benefit to their employees,” said Governor Phil Murphy. “The team at Rutgers has amassed significant expertise on the deployment of ESOPs, and will be a crucial partner in raising awareness of this tremendous financial opportunity for New Jerseyans.”
Despite the success of ESOPs nationwide, to date, New Jersey continues to report one of the lowest rates of employee-owned companies across the United States. Currently, New Jersey is home to 88 ESOPs, holding $64.9 billion in plan assets covering 423,429 current employees and retirees, with an average stock account for eligible current employees of $188,868.
“ESOPs offer a powerful mechanism for creating a stable transition plan for companies, while also helping employee owners accumulate wealth to pass on to future generations, particularly within communities of color,” said NJEDA CEO Tim Sullivan. “Under Governor Phil Murphy’s leadership, the Wealth Disparity Task Force identified an opportunity to mitigate barriers for entry into ESOPs, releasing their potential to secure the future of businesses and their employee owners that outpaces more widely-employed forms of savings and investment.”
Funded at $2 million, the MOU between the NJEDA and Rutgers SMLR will support the creation of a technical assistance program in which Rutgers SMLR will develop a tool to help interested New Jersey businesses determine if transitioning to an ESOP may be a viable option for succession planning. Additionally, Rutgers will spearhead a series of outreach initiatives designed to increase awareness and access to information for employees and business owners interested in considering becoming an ESOP. The programming will be led by SMLR’s Institute for the Study of Employee Ownership and Profit Sharing and its New Jersey/New York Center for Employee Ownership.
“A large percentage of retiring business owners have few succession plan options, and don’t realize they can sell the company to their employees instead of closing up shop,” said Professor Bill Castellano, Executive Director of the New Jersey/New York Center for Employee Ownership. “Employee ownership strategies save jobs and help to keep the business and the local economy going. Our research shows that when low-income workers own some or all of the companies where they work, they can also build significant wealth over time. Yet, this important option for succession and wealth preservation has to date not been sufficiently communicated to underrepresented business owners. This program aims to begin to correct that.”
In April 2024, the NJEDA issued a Request for Information (RFI) for Development of a Statewide Employee Ownership Program to solicit information on the current ecosystem surrounding employee ownership models, assistance programs offered by other jurisdictions, and barriers faced by aspiring employee-owned companies. The RFI revealed that the employee ownership transition process presents technical and financial barriers to entry that present challenges to business owners and employees related to the complex legal, accounting, administrative and compliance requirements. Despite these hurdles, many employee-owned companies continue to thrive, creating and sustaining wealth for their employee owners.
“The Wealth Disparity Task Force’s recommendation of ESOPs as a means to support businesses and help people of color build generational wealth is groundbreaking, as ESOPs offer a proven framework for achieving financial stability,” said NJEDA Chief Diversity Officer Michelle Bodden. “The collaboration of the NJEDA and Rutgers SMLR to advance this framework and educate the public on this opportunity will help families that struggle to save for the future achieve their long-term financial goals.”
“Studies show that employee ownership models support wealth building and retirement opportunities for workers. The Wealth Disparity Task Force found that employee ownership models can effectively address long-standing wealth disparities that disproportionately affect Black and Hispanic workers,” said Jayné Johnson, Director, NJ Office of Equity, Office of the NJ Governor. “This initiative will advance existing work in our state to expand opportunities for asset-limited workers and their families.”
About the NJEDA
The New Jersey Economic Development Authority (NJEDA) serves as the State’s principal agency for driving economic growth. The NJEDA is committed to making New Jersey a national model for inclusive and sustainable economic development by focusing on key strategies to help build strong and dynamic communities, create good jobs for New Jersey residents, and provide pathways to a stronger and fairer economy. Through partnerships with a diverse range of stakeholders, the NJEDA creates and implements initiatives to enhance the economic vitality and quality of life in the State and strengthen New Jersey’s long-term economic competitiveness.
To learn more about NJEDA resources for businesses, call NJEDA Customer Care at 844-965-1125 or visit https://www.njeda.gov and follow @NewJerseyEDA on Facebook, Twitter, Instagram, and LinkedIn
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