An employee stock ownership plan (ESOP) is a retirement plan in which an employer contributes its stock to the plan for the benefit of the company’s employees. 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.

In Connecticut, as in other states, an Employee Stock Ownership Plan (ESOP) is a type of employee benefit plan designed to invest primarily in the stock of the sponsoring employer. ESOPs are governed by federal law, specifically the Employee Retirement Income Security Act (ERISA) of 1974, and the Internal Revenue Code. These laws set forth the requirements for establishing an ESOP, which include the creation of a trust to hold the company's stock, rules for allocating stock to employees' accounts, and the vesting schedules for those allocations. The contributions made by the employer to the ESOP are tax-deductible, providing a tax benefit to the company. Additionally, employees in Connecticut participating in an ESOP are generally not taxed on the contributions to the ESOP until they receive distributions from the plan, typically upon retirement, termination, or other qualifying events. It is important to distinguish ESOPs from employee stock option plans, which are incentive schemes that give employees the option to buy company stock at a future date at a predetermined price, and are also subject to specific regulatory requirements.