Employee Stock Ownership Plan

rdf:langString Employee Stock Ownership Plan

rdf:langString InternetArchiveBot

rdf:langString August 2021

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rdf:langString An Employee Stock Ownership Plan (ESOP) in the United States is a defined contribution plan, a form of retirement plan as defined by 4975(e)(7)of IRS codes, which became a qualified retirement plan in 1974. It is one of the methods of employee participation in corporate ownership. ESOPs are regulated by the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for investment plans in private industry. Internal Revenue Code section 404(a)(3) provides for an annual limit on the amount of deductible contributions an employer can make to a tax-qualified stock bonus or profit-sharing plan of 25% of the compensation otherwise paid or accrued during the year to the employees who benefit under the plan. The Oakland, California-based think tank estimates that there are approximately 11,300 employee stock ownership plans for over 13 million employees in the United States. Notable U.S. employee-owned corporations include the 170,000 employee supermarket chain Publix Supermarkets, Hy-Vee, McCarthy Building Company, WinCo Foods, environmental consulting firm Citadel Environmental Services, Inc., and Harpoon Brewery. Today, most private U.S. companies that are operating as ESOPs are structured as S corporation ESOPs (S ESOPs). According to , a national trade association based in Washington, DC, The most common reason for establishing an ESOP is to buy stock from the owners of a closely held company. Many closely held companies have little or no succession plan in place. As a result, the day a founder or primary shareholder leaves the business often results in significant adverse consequences for the company, the employees, and the exiting owner. ESOPs offer transitional flexibility that can facilitate succession planning. Founders and main shareholders can sell to ESOPs all of their shares at one time, or percentages of their shares on the schedule of their choosing. The transition in leadership, therefore, can occur as quickly or slowly as the owner wishes.