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Learn About ESOPs

Employees

ESOPs offer employees a sense of ownership of the company they work for, as well as a tax-deferred retirement benefit.

ESOPs offer employees a sense of ownership of the company they work for, as well as a tax-deferred retirement benefit.

ESOP transactions are completed among the people that have contributed most to the business' success - its employees.

 

ESOPs were created by the Employee Retirement Income Security Act (ERISA) in 1974 as a new type of retirement plan for employees. Just as ESOPs offer tax benefits for the selling shareholders and the company as a whole, ESOP benefits are tax-deferred. Employees' ESOP benefits aren't taxed until they receive distributions -and this usually occurs when the employees leave the company.

 

Not only do ESOPs offer retirement benefits for employees, but they offer a sense of ownership. Owning stock in an ESOP allows participants to share in the growth of their company, creating an "employee owner" mindset. It has been demonstrated time and time again that ESOPs make good financial sense, since companies with broad-based employee ownership outperform comparable companies without employee ownership. ESOPs essentially allow shareholders of the company to link employees' compensation with the company's long term success - because in an ESOP company, the profitability of the company is directly linked to the employees' productivity.