Employee Stock Ownership Plans as an Employee Retirement Benefit
Employee Stock Ownership Plans buy shares for the employees of the company and holds them in a tax-free trust as an employee retirement benefit. Then each employee is given shares in an account based on their tenure with the company. At the end of each year an independent advisor values the company based on the performance of the company. When the company’s value increases, then the value of the employee’s stock grows. Therefore, the employee’s wealth grows as the company continues to perform well.
When the employee leaves the company, they are paid the value of the stock from the Employee Stock Ownership Plan. If the payment goes into a retirement account, they receive this benefit tax-free. Then their stock is distributed to the other employees in the ESOP. As a result, all of the employees participate in the success of the company without giving up current earnings, like in a 401k plan.