An employee stock ownership plan (ESOP) is a retirement plan in which an employer contributes its stock (or money to buy its stock) to the plan for the benefit of the company’s employees. The plan maintains an account for each employee participating in the plan. Shares of stock vest over time before an employee is entitled to them. With an ESOP, an employee never buys or holds the stock directly while still employed with the company. If an employee is terminated, retires, becomes disabled, or dies, the plan will distribute the shares of stock in the employee’s account. This type of plan should not be confused with employee stock option plans, which give employees the right to buy their company’s stock at a set price after a certain period of time.

An ESOP is a qualified defined contribution plan—under Internal Revenue Code (IRC) section 401(a)—that is a stock bonus plan or a stock bonus/money purchase plan. See 26 U.S.C. §401(a). An ESOP must be designed to invest primarily in qualifying employer securities—as defined by IRC section 4975(e)(8)—and meet certain requirements of the IRC and applicable regulations. The Internal Revenue Service (IRS) and the Department of Labor (DOL) share jurisdiction over some ESOP features.

In Louisiana (LA), as in all states, an Employee Stock Ownership Plan (ESOP) is regulated primarily by federal law, specifically under the Internal Revenue Code (IRC) section 401(a) and applicable regulations. An ESOP is a type of retirement plan that allows employees to benefit from the company's growth through the acquisition of stock. The company contributes its own stock or funds to purchase the stock on behalf of the employees, who then have accounts within the ESOP. The stock in these accounts vests over time, and employees gain full ownership of the stock according to the plan's vesting schedule. Employees do not directly buy or hold the stock while employed. Upon termination, retirement, disability, or death, the ESOP distributes the shares to the employee or their beneficiaries. The plan must primarily invest in qualifying employer securities as defined by IRC section 4975(e)(8) and comply with various requirements to maintain its qualified status. The IRS oversees the tax aspects of ESOPs, while the Department of Labor (DOL) has jurisdiction over the fiduciary, reporting, and disclosure aspects of these plans. It's important to note that state laws may also impact certain aspects of ESOP administration, but the primary regulatory framework is federal.