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.

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Can a company have a more flexible written distribution policy that is not part of the ESOP plan document?

The IRS has issued regulations stating that a separate written distribution policy is acceptable provided that the ESOP plan document allows that. Typically, the plan document will provide for the longest possible distribution rules, but the written policy will allow an ESOP Administrative Committee to set a policy that pays people out sooner. This could mean paying out sooner after termination and/or paying everyone sooner up to some dollar maximum account value. The policy must be non-discriminatory in language as well as practice. This can happen if the company frequently alters its rules, for instance. The best policy is to have a strict definition of when a faster payout would create significant financial impairment for the company and to make changes rarely.

For details, see Creating a Sustainable ESOP Distribution Policy

Link to this FAQ Topic: Distributions & Repurchase