How does an ESOP work?

An ESOP serves as a means of ownership transition for business owners, and as a form of employee ownership and a retirement plan for eligible employees. An ESOP is implemented by created a special legal entity called an Employee Stock Ownership Trust along with a qualified retirement plan called an Employee Stock Ownership Plan. Collectively, these allow the ESOP to acquire stock of the plan sponsor, which is typically allocated to eligible employees, called participants, over time. Each year, participants will receive a statement that details the value of their account, which is based on their number of shares and the company stock price. When a participant retires or otherwise separates from the company, they are entitled to receive the value of the allocated & vested stock in their account.