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 Utah, as in all states, an Employee Stock Ownership Plan (ESOP) is regulated primarily by federal law, specifically under sections of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA). As a qualified defined contribution plan under IRC section 401(a), an ESOP allows employers to contribute their own stock or funds to purchase such stock for the benefit of their employees. The plan holds an account for each participating employee, with shares vesting over time. Employees do not directly buy or hold the stock while employed. Upon termination, retirement, disability, or death, the ESOP distributes the vested shares to the employee or their beneficiaries. ESOPs must invest primarily in qualifying employer securities and comply with specific requirements of the IRC and ERISA. The IRS oversees the tax aspects of ESOPs, while the Department of Labor monitors compliance with ERISA's fiduciary and reporting requirements. While state law in Utah does not specifically govern the operation of ESOPs, state corporate law and state tax law may have indirect effects on how ESOPs are managed and how distributions are taxed at the state level.