Share this Page URL

Employee Stock Ownership Plans 64 · Retaining employees. --ESOPs are not as effective as incentive stock options in retaining key employees because companies can't target individuals. All employees must participate. How- ever, in businesses where highly skilled workers are important, ESOPs can help keep workers with the company longer. · Tax advantages. --There are numerous tax advantages for the business, as well as the em- ployees. See the following discussion on taxes. Companies have different reasons for establishing ESOPs; some involve benefits for the employee, and others accrue to the company. Caution Key management people will usually expect something extra besides an ESOP when re- cruited. Qualifying the Plan It is helpful to understand some things about qualified retirement plans before we move to more details about ESOPs. The specific law that governs ESOPs and other pension or retirement plans is the Employer Re- tirement Income Security Act of 1974 (ERISA). This spells out certain requirements the company must meet to qualify and protects your rights. Qualified retirement plan means the IRS has approved the structure and administration of the plan and it will receive favorable tax treatment. This is important to the company, but it is also important to you. It is important because there are no tax liabilities you have to deal with until you actually receive a benefit from the plan, with the exception of dividends, covered later in this lesson. This