Advantages of Employee Ownership
Invest in Your Employees and Your Business with an ESOP
As of 2022, the National Center for Employee Ownership (NCEO) estimates roughly 6,500 ESOPs covering almost 14 million participants. An ESOP is an attractive employee benefit and corporate financing tool; its structure can range from simple to very complex. Its feasibility should be considered by competent lawyers, accountants, and administrators to ensure tax deductibility compliance with the Internal Revenue Service regulations and to meet the employee benefit plan requirements of the Department of Labor.
Benefits to Employees
An Employee Stock Ownership Plan (ESOP) is a retirement plan that allows employees to experience the benefits of equity ownership. Since the company allocates stock to each employee’s account, the employee bears no financial cost for this benefit. The ESOP benefits employees who remain with the employer the longest and contribute most to its success.
Key benefits include tax deferral on employer contributions and account earnings until distributions are received. Employees can further reduce tax consequences by rolling over distributions into an IRA. Employees are entitled to their vested share upon leaving the company, which the company may distribute as stock or cash. A “put” option allows employees to sell back privately held company stock to the company or ESOP, ensuring liquidity.
Multiple studies have shown that ESOPs align employees' financial interests with company success, enhancing performance, stability, and job satisfaction. They also help companies attract and retain top talent while preserving jobs during challenging times and seasons of uncertainty. In short, employees gain the financial benefits of ownership without the initial investment or risks typically associated with it.
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