What Is an ESOP Account?
Setup ESOPs are set up as trusts composed of individual employee accounts. They might be started for a variety of reasons, such as buying out a departing company owner, or to encourage employees to feel more invested in their company’s success. Allocations How much money a company allocates annually to different employees’ accounts varies. According to the ESOP Association, some companies base allocations on salary or longevity. Some companies don’t enroll employees in a plan until they’ve worked there at least a year. Vesting Companies establish vesting schedules that determine how quickly employees can gain access to the assets in their ESOP accounts. Once vesting begins, it often occurs gradually, sometimes starting at 25 percent and increasing each year until 100 percent is vested. Distributions ESOP distributions may begin after various events in an employee’s life, such as termination, retirement or death. Distributions might be made in a lump sum or in smaller amounts over a per
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