ESOP- Employee Stock Ownership Plan

ESOP- Employee Stock Ownership Plan
A contribution to trust funds by companies for stock investments done for employees on their behalf.
  • Alex Moss

    An ESOP is a form of defined benefit contribution plan = a pension plan. Most contributions come from the sponsor company, but ESOPs may permit employee contributions under certain circumstances.

    The key difference between an ESOP and other pensions is that an ESOP is required to invest *primarily* in the stock of the sponsor company, rather than in a diversified portfolio of public market securities.

    In so doing, participants gain an ownership interest (though the ESOP retirement trust) in the company where they work. There are other important distinctions too, but in my view, that’s the essence.