Employee Stock Ownership Plans (ESOPs) are a type of employee benefit plan that companies can participate in. They are qualified retirement plans that buy, hold and sell company stock for the benefit of the employees. With an ESOP, a trust is established and each year the employee makes tax-deductible contributions of company shares that are owned by the company.
When the company has an ESOP, employees are given an ownership stake in the company. The plan motivates employees to acquire stocks or ownership in the company because it provides additional benefits.
There are pros and cons to ESOPs. Here are some of the aspects of ESOPs that you should consider before investing.
Less Diversity in Retirement Savings
Investors typically advise individuals to invest in different companies and industries instead of locking their savings into one company. When a company goes out of business, employees can lose both their investments in the ESOP and their jobs.
More Seniority Means More Power
ESOPs are designed to give higher voting power to employees with seniority. When new employees are just starting out at a company, they are given limited opportunities to participate in the decision-making process for the business. But if the company continues to grow, each employee’s percentage of shares decreases and affects voting power as well.
Overall Happier Work Environment
These employee benefit plans give workers more ownership interest in the company and help motivate employees to do what is best for the company because they are shareholders. The company and the employees both receive benefits from participating in an ESOP. After contributing throughout their career, the employees are paid the value of their account when they leave the company. During the time a company participates in an ESOP, they receive various tax benefits and their business may be more successful because the employees have an interest in the company.
If you’re considering raising a dispute regarding an ESOP, contact us today.
Gaslowitz Frankel LLC is Georgia’s premier fiduciary litigation law firm. Our legal team specializes in all aspects of fiduciary disputes, representing individuals, executors, trustees, investors, shareholders, and financial institutions in complex fiduciary disputes involving wills, estates, trusts, guardianships, businesses, and securities.
