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 participants leave the ESOP, what happens to the unvested shares in their accounts?

Participants who leave the ESOP will forfeit the unvested shares in his or her account, if any. Companies have two choices in the timing of the forfeitures:

  • Choice A: The company may choose not to forfeit the unvested shares until the former participant has five consecutive breaks in service, where a "break in service" is generally defined as a plan year in which the employee has 500 or fewer hours of service due to a termination of employment. This normally is done because if a former employee comes back prior to getting a distribution, then their account needs to be restored.
  • Choice B: Alternatively, the company may forfeit the unvested shares as soon as the former participant's vested benefit is completely distributed, as long as this is not later than choice A.

Link to this FAQ Topic: Distributions & Repurchase