ESOPs were first authorized by federal legislation in 1974. Since that date, there have been more than 25 separate pieces of legislation that have further defined what an ESOP is and what an ESOP is permitted to do. Despite this fact, significant misconceptions about ESOPs persist. The following describes some of the more prevalent myths and misconceptions regarding ESOPs. Hopefully, the explanations provided below will help to dispel many of the misconceptions that currently exist regarding these matters. MISCONCEPTION #1 – The ESOP is primarily an employee benefit plan. The ESOP is not primarily an employee benefit plan. The reverse is true. The ESOP is primarily a tool of corporate finance that is used as an alternative to a sale or merger as a way of creating liquidity and investment diversification for owners of privatelyheld businesses. An ESOP uses the tax advantages afforded to qualified employee benefit plans in order to ... Read More..
An increasing number of companies are turning to Employee Stock Ownership Trust financing as a means to simultaneously raise low cost capital and provide increased employee incentives and retirement benefits while reducing the cost of qualified plan benefits. The Employee Stock Ownership Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. As such it is in the same family as pension plans, profit sharing plans and stock bonus plans. Nevertheless, The Employee Stock Ownership Plan (which together with the Employee Stock Ownership Plan, is referred to as the “Trust” or “ESOP”) is qualitatively different from other types of “qualified plans,” both in its concept and in its applications. Because of its inherent flexibility, because of its ability to facilitate and enhance corporate growth and because of its separate status under the recently enacted Pension Reform Act, the ESOP possesses an assortment of unique advantages not possessed ... Read More..