Employee Stock Ownership Plan
The acronym ESOP stands for employee stock ownership plan. Employee stock ownership plans must follow federal law because the federal government provides some very significant tax benefits for ESOPs that meet certain requirements. Unfortunately, dealing with any ESOP means dealing with both the Department of Labor and the Internal Revenue Service. In some ways, ESOPs are similar to 401k plans and many of the same rules with regard to discrimination apply. The key exceptions between an ESOP and 401k or other retirement plan is that an ESOP must invest primarily in company stock. And, ESOPs can also take loans, which is usually prohibited in retirement plans. One great benefit of ESOPs is that the employees don’t need to use their own funds to acquire stock in the sponsoring company.