How does the ESOP benefit employees?
Each year company contributions to the ESOP, both cash and stock, are allocated to the accounts of participating employees in the trust established as part of the ESOP. The accumulated balance in a participants account is distributed to the participant after his or her retirement or other termination of employment with the company (See Question 40). So long as a participants account remains in the ESOP trust, the value of the account– including the appreciation in stock value– is not taxable to the employee. Employees age 55 or older with 10 or more years of participation in the ESOP must be allowed to diversify a portion of their ESOP accounts (See Question 36). ESOP financing permits the repayment of acquisition debt with pre-tax dollars. This favorable tax treatment means that ESOPs are effective vehicles for financing management buyouts.
Each year company contributions to the ESOP, both cash and stock, are allocated to the accounts of participating employees in the trust established as part of the ESOP. The accumulated balance in a participants account is distributed to the participant after his or her retirement or other termination of employment with the company (See Question 40). So long as a participants account remains in the ESOP trust, the value of the account– including the appreciation in stock value– is not taxable to the employee. Employees age 55 or older with 10 or more years of participation in the ESOP must be allowed to diversify a portion of their ESOP accounts (See Question 36). ESOP financing permits the repayment of acquisition debt with pre-tax dollars. This favorable tax treatment means that ESOPs are effective vehicles for financing management buyouts. Return to the top of the page.
