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 New Hampshire, as in all states, an Employee Stock Ownership Plan (ESOP) is regulated by federal law, specifically under the Internal Revenue Code (IRC) section 401(a) and the Employee Retirement Income Security Act (ERISA). ESOPs are considered qualified defined contribution retirement plans that allow employers to contribute their own stock or funds to purchase the stock on behalf of their employees. The shares are allocated to individual employee accounts and vest over time, ensuring that employees are entitled to the benefits after a certain period. The IRS oversees the tax aspects of ESOPs, ensuring they meet specific requirements for tax-favored status, while the Department of Labor (DOL) ensures that ESOPs comply with ERISA regulations, which protect the interests of employee participants in employee benefit plans. It's important to note that ESOPs differ from employee stock option plans, which provide employees with the option to purchase company stock at a predetermined price. In the event of termination, retirement, disability, or death, an ESOP participant's vested shares are distributed according to the plan's terms. Employers in New Hampshire must adhere to these federal regulations when establishing and maintaining an ESOP.