The main types of ESOP plans and their benefits Essay Example

There are two primary types of Employee Stock Ownership Plans (ESOPs): a stock bonus plan and a leveraged plan. Both types involve the establishment of an ESOP trust that is tax-exempt according to the Internal Revenue Code. In a stock bonus plan, the company provides either stock or cash to the ESOP funds, which are utilized for purchasing company stock. This stock is subsequently distributed to employees' accounts based on their salary level and seniority. Employees have the option to sell the stock on the open market or sell it back to the employer upon retirement or departure from the company.

Using a leveraged plan, an "ESOP borrows money from a bank or other financial institution to purchase stock" (Bohlander ; Snell, 2004, p. 452). The ESOP account can provide a guarantee for the loan using the purchased stock and the loan is repaid over time with tax-deductible contributions fr