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 an ESOP repurchases shares from departing employees, does this have an impact on Section 415 (individual annual addition) or Section 404 (corporate deduction) limits?

If the ESOP uses its own existing cash to buy back shares, then there are no 404 or 415 issues because there are no contributions being made. Cash goes out of employee accounts, where it has already been allocated, and is replaced by shares. If the company contributes additional cash to the ESOP to repurchase shares, then this too is an additional contribution that would affect both 415 and 404.

Link to this FAQ Topic: Distributions & Repurchase