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An Employee Stock Ownership Plan (ESOP) is an employee benefits program that empowers employees to own a piece of the company they are helping to build. In an ESOP, employees acquire company stock as part of their retirement package, which is often tied to vesting and rewards longevity with the organization. Companies that utilize ESOPs are often more productive and enjoy a positive, collective internal culture. ESOPs are also a great recruiting and retention tool. 

Employees who participate in a company’s ESOP receive an allocation of shares. When an ESOP is first formed, a trust fund is set up. The fund is comprised of newly issued shares and/or cash to purchase existing shares which, once purchased, go back into the trust. Shares of company stock are allocated to each participant’s individual ESOP retirement plan account every year. Read more on this topic in our comprehensive blog.

Yes, Employee Stock Ownership Plans are a type of retirement plan that empowers employees to own a piece of the company they are helping to build. When participants leave the company or retire, they are able to request a distribution from their account if they have met vesting schedule requirements. ESOP distributions are cash payments based on the current fair market value of the shares in the participant’s account at the time of distribution. The former employee receives cash and the shares are sold back to the ESOP sponsor, going back into the trust fund to be reallocated to remaining participant accounts. Keep reading about this topic in our blog.

While ESOPs are implemented in companies across diverse industries, they may not be suitable for every business. ESOPs are available only to C-Corporations and S-Corporations. They are not recommended for start-ups and small businesses. Furthermore, there are cash flow requirements that must be met, which limits what is available for reinvestment in the company.