As with all qualified employee benefit plans, ESOPs are governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).

To ensure equitable representation of historically disadvantaged groups, Congress has provided for programs to support businesses owned by minorities, women, veterans, and other groups.

All defined contribution plans, including employee stock ownership plans (ESOPs), must provide a benefit statement to each participant annually.

Although Congress authorized the creation of ESOPs in the Employee Retirement Income Security Act of 1974 (ERISA), ESOPs are not singularly a retirement plan for their participants.

When an ESOP is first created, the ESOP buys shares from a business owner, and the cash for the transaction is “loaned” by the Company to the ESOP. Those funds typically come from three sources: the company’s cash on hand, debt from a bank or another outside lender, and debt from the selling stockholder.

The ESOP Association’s membership is bound by the commonality of employee stock ownership plans – to that end, TEA advocacy intends to work at the federal, state, and local levels, to the extent possible and resources allow, to promote ESOPs specifically and employee ownership in general.