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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What is in the summary plan description (SPD)?

This is the document that explains how the plan works, including employee rights under the plan. It names the trustee, describes how assets are valued, what form the distribution will take, what the tax consequences and investment alternatives are for the distribution, and indicates how and when employees will get their shares, vote shares allocated to them, and file complaints. The SPD can have legal force, so it should be written by or with an attorney. Companies can, and should, provide a separate and simpler employee handbook with appropriate disclaimers. If there are material modifications to the plan, they should be described in written material for the employees.

The administrator must furnish a summary plan description (SPD) within 90 days of the date a person becomes an ESOP participant or beneficiary receiving benefits under the plan or, if later, within 120 days of the date the plan first become subject to Title I of ERISA (generally the date the IRS first issues a favorable determination letter related to the plan). The required contents of the SPD are detailed in DOL regulations. The SPD must be revised and issued every five years if there have been material amendments to the plan or every 10 years in any case. Whenever a material amendment is made to the plan, a Summary of Material Modification (SMM) must be provided to all participants no later than 210 days following the end of the year in which the modification became effective.

Link to this FAQ Topic: Governance, Fiduciaries & Compliance