ESOP Employee Stock Ownership Plans Require Annual Business Valuations – ESOP Benefits to Employees

ESOPs or Employee Stock Ownership Plans are a qualified defined contribution plans under the Internal Revenue Code.  ESOPs or Employee Stock Ownership Plans require an annual business valuation.  They are often used as a way for business owners to create liquidity for themselves while staying involved with the business.  In this post, I am going to focus on the benefits of ESOP’s, Employee Stock Ownership Plans to employees participating in the plan.

Employees obtain many benefits through the creation and use of an ESOP.  The largest benefit is the the ESOP is a retirement plan that is funded by the employer.

  • The sponsoring Company makes annual contributions to the ESOP.  These contributions of stock and/or cash increase the value of the participating employees’ accounts within the ESOP trust.
  • A participant’s account balance that remains in the trust (including the value of stock appreciation), is not taxable to the participant until the participant withdraws the funds through a distribution.
  • Once employees reach the age of 55 and have at least 10 years of participation in the ESOP they will be allowed to diversify a portion of their ESOP account.

ESOP’s provide a company funded retirement plan for participating employees.  In short a very good deal.