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Mini-cast 181: Hardship Withdrawals from ESOP Accounts

Bret Keisling highlights a blog post in Employee Ownership News by Adria Scharf about how Central States Manufacturing finds the balance between short term needs and retirement security through the use of hardship and in-service withdrawals.

Bret looks at positives and potential ramifications to early withdrawals, including the balance between access to funds for those in need and the risk of depleting retirement funds prior to retirement.

Adria Scharf, PhD, is a Beyster Fellow and director of the Curriculum Library for Employee Ownership (CLEO) at the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University’s School of Management and Labor Relations.

Referenced in the blog post and Mini-cast is the Journal of Participation and Employee Ownership which can be found here.

Listen to this episode on Soundcloud or subscribe on Google Play or iTunes/Apple Podcasts.

The ESOP Podcast is licensed under a CC BY-NC-ND Creative Commons License.


Mini-cast 181 Transcript

[00:00:00] Bret Keisling: Welcome to the ESOP Mini-cast. Thank you so much for listening. My name is Bret Keisling, and as it says on my business cards, I'm a passionate advocate for employee ownership. Earlier this week, Employee Ownership News, which is produced by Fifty by Fifty, tagged me and the @EsOpPodcast on a tweet that featured a blog post written by Adria Scharf of the Curriculum Library for Employee Ownership, which is of course, part of the Rutgers School of Management and Labor Relations.

[00:00:33] In the post Adria discusses an interesting and important way the ESOP companies can balance short-term needs with retirement security.

[00:00:41] She specifically highlights Central State's Manufacturing, Inc. which makes metal building components and building packages. I highly recommend you check out the blog post. And as I've said many times on the podcast before, subscribe to Employee Ownership News. You get regular newsletters. But I also strongly recommend you follow them on Twitter. Employee Ownership News is curated and edited by Karen Kahn and she does a wonderful job covering a variety of issues.

[00:01:06] There were a couple of things that caught my attention reading the blog post. What Central States Manufacturing does is a great job of educating their employee owners about the availability of hardship loans. In all my time in employee ownership, since 2008, my seven years as an ESOP trustee and in the almost five years I've hosted these podcasts, I don't know that I've ever heard of a company making such a concentrated effort to educate the employee owners.

[00:01:34] I like the fact that they put a strong emphasis not just on educating the employee owners about the options but also the downsides. So, for example, tax ramifications. I think this is going to open a new area of interest in employee ownership.

[00:01:47] Here's an example of where my current hat conflicts a little bit with previous hats that I've worn. As an ESOP trustee, I don't believe I ever had a client who discussed hardship withdrawals, unless it truly was an extraordinary circumstance.

[00:01:59] As the focus on ESOPs is retirement -- and as a reminder, statutorily, all ESOPs are is a retirement plan -- I have a little bit of concern that employees would withdraw from their accounts and pay significant early withdrawal tax penalties and end up having very little to show when they retire. But to be honest, in my current role as an EO advocate and podcaster, it sort of feels like I'm taking a paternalistic view as to how employee owners should spend their money. In other words, what puts me in the position of wondering what is hardship enough?

[00:02:30] Coming out of the pandemic or perhaps in a pause of the pandemic, people are struggling in ways that are unique in history. I think all options that are available should be discussed. And like Central State's Manufacturing, make sure that employee owners have the right knowledge to make educated decisions for themselves.

[00:02:47] I think with my trustee hat on, my concern was what if there was a run on request for loans or funding? But, as we discussed it among our team prior to recording the Mini-cast, I'm reminded that it fits squarely in with the tenants of employee ownership. We trust folks with the right information, and we trust them to make decisions in their own interests for themselves and the employee-owned companies. That should be enough.

[00:03:09] There's a very valid point that if an employee owner just knows that they're educated that they have access to a hardship withdrawal that's a pretty potent tool for them to have, as they maneuver through life. I think this is one of those things that we're going to start hearing more and more about, and Adria's post does a great job of highlighting a very important and interesting issue.

[00:03:30] One other thing that caught my attention in the blog post, and that's a reference to the Journal of Employee Ownership and Participation. I'm not sure why, but I don't think I've ever heard of the Journal until now. So, we'll include a link in our show notes, and I look forward to finding out more about them.

[00:03:45] As I prepare to wrap up this Mini-cast, I'm excited to be in Seattle the last week of April for The NCEO's Annual Employee Ownership Conference. You heard all about it on our primary EO/ESOP podcast earlier this week. And I'm especially excited that Jesse Tyler host, of the Owner to Owner podcast will be presenting with me on "Boosting EO through Social Media and Podcasting." Adria Scharf, who wrote the blog post that I've discussed today, is one of the keynote speakers along with Ron Scheese, in a session that will be moderated by our friend, Tim Garbinsky.

[00:04:15] If you're going to be in Seattle, reach out. I'd love to meet you in person!

[00:04:18] My thanks again to the Employee Ownership News for tagging me on social media. And if you've got something you're working on, or you see something noteworthy someone else is working on, feel free to tag us as well, because we're always looking for things to amplify and celebrate on all of our podcasts and social media network.

[00:04:34] Thank you so much for listening. This is Bret Keisling. Be well.


[00:04:37] Bitsy McCann: We'd love to hear from you. You can find us on Facebook at EO Podcast Network and on Twitter @ESOPPodcast. This podcast has been produced by Bret Keisling for the EO Podcast Network, production assistance by Victoria Huerta, original music composed by Max Keisling, branding and marketing by BitsyPlus Design, and I'm Bitsy McCann.

Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.

A note on the transcript: This transcript was produced by Descript, an automated transcription service. While it has been reviewed by The EsOp Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.

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