Employee Stock Ownership Programs

Back to Plan Types

ESOP PLAN

Employee Stock Ownership Plans (ESOP) can be either a profit sharing or a money purchase pension plan. The funds must be invested primarily in employer company stock. Unlike other plans, an ESOP may borrow from the employer or use the employer's credit to acquire company stock.

The Profit Sharing ESOP is designed for ease and flexibility. Employers who desire flexibility in the amount of their annual contribution traditionally use profit sharing plans. These are normally an employer whose annual profit picture fluctuates and does not want a specific annual contribution. Under a profit sharing plan, the company agrees to make annual contributions, which may be discretionary. Those contributions are invested on behalf of the plan participants in primarily employer stock. Generally, employer contributions may vary from 0 percent to 25 percent of the total annual eligible payroll and are usually determined after the close of each plan year.

The Profit Sharing ESOP must satisfy annual nondiscrimination testing guidelines, provide for minimum benefits in any year that the plan is determined to be top heavy and not exceed 100 percent or $41,000 allocation to a single participant in any one year.

Back to Qualified Retirement Plans

PENSERVCO Privacy Policy