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What is an Employee Stock Ownership Plan (ESOP)?

An ESOP is a qualified retirement benefit plan designed to provide employees with an ownership interest in the company for which they work by investing primarily in stock of the employer.

The ESOP is funded with tax-deductible contributions by the employer in the form of company stock, or in cash that is used to purchase company stock. An ESOP operates through a trust, under the direction of a trustee or other named fiduciary.

To be an ESOP, the plan must be specifically designated as an ESOP in the plan document and must comply with special ESOP requirements of the Internal Revenue Service (IRS).

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