The employee stock ownership plan (ESOP) is hardly a new concept. But it remains an intriguing benefits option for many companies.
An ESOP is a form of qualified retirement plan — specifically, a profit-sharing plan. It allows employees to own part of the company that employs them and then cash in their shares when they retire or otherwise leave the business.
Generally, an employer creates an ESOP by setting up a trust and contributing new company shares to it. The trust becomes the legally recognized owner of the company shares and is managed by a trustee who oversees the employees’ interests. Once the ESOP is up and running, the company makes annual, tax-deductible contributions that fund participants’ retirement accounts.
ESOPs offer businesses some exciting advantages, including:
- Increased employee motivation,
- Ease of ownership transition, and
- Immediate tax benefits.
These arrangements, however, do present challenges. They’re not easy to set up, and the rules for plan distributions are complex. You’ll also need to have a business valuation performed. What’s more, ESOP fiduciaries have recently faced scrutiny by the Department of Labor.
If you think an ESOP might be a good fit for your company, contact us. We can help you further assess this type of retirement plan and, should it suit you, help implement it.