Here we go again.

The news about Bear Stearns is already triggering much negative press on ESOPs. While I do feel sympathy for those employees, I don’t appreciate the rush to the judgment that ESOPs are bad.

A Lesson From Bear: Don't Hold Large Chunks of Company Stock

A Bear Market for 401(k) Plans

Wall Street employee owners shudder as Bear Stearns implodes

There clearly is a difference between the ESOPs maintained by publicly traded companies and the ESOPs maintained by privately held companies. In the latter, it would be very unusual to see any employee 401(k) contributions invested in company stock. Rather the 401(k) contributions remain invested in mutual funds as selected by the participants (of course, that is an issue in and of itself – do participants have the expertise to make the best investment decision even when choosing among mutual funds.)

With many ESOPs of privately held companies, the ESOP is an additional benefit that is funded entirely by employer contributions. So it is possible that if the ESOP company fails, that the ESOP balances would become worthless. But if the ESOP did not exist, the employer likely would not have been contributing to another retirement plan at the same rate as they contribute to the ESOP. In other words, the retirement balances that could be lost may not even exist if the ESOP did not exist.

Also, there is clear evidence that ESOPs do improve the company’s financial performance. Maybe this improvement is confined to privately held companies.  But let’s be clear on all of these points before just concluding that ESOPs are bad for the retirement income security of the participants.

I have heard several commentators refer to the distinction between what happens on Wall Street and what happens on Main Street – maybe the same is true for ESOPs. Don’t be “dissing” on Main Street ESOPs because what has occurred with Wall Street ESOPs.