Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

When companies have multiple plans and a leveraged ESOP is one of them, does the 25% of pay limit apply to each or both together?

All forms of ESOPs can contribute up to 25% of eligible pay to the plan. The IRS ruled that contributions to an ESOP and other plans do not need to be aggregated for total eligible pay purposes in a leveraged, C corporation ESOP, but this does not apply to other types of ESOPs.

If the ESOP is leveraged and is in a C corporation, contributions to the ESOP count separately from other contributions to qualified plans, so the 25% limit applies only to what is needed to repay the ESOP loan, not the aggregate of all contributions.

For more information, See Understanding ESOPs.

Link to this FAQ Topic: ESOP Plan Design & Participation