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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 New Mexico, 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 plan's operation, funding, and the fiduciary responsibilities of those managing the plan. ESOPs are unique in that they are both employee benefit plans and corporate finance tools. The contributions made by the employer can be in the form of new shares of its own stock or cash to buy existing shares. Unlike stock option plans, ESOPs provide employees with stock ownership at no upfront cost to the employee; however, there are vesting requirements that must be met before the employee gains full ownership of the stock. It's important for employers in New Mexico to comply with both federal regulations and any relevant state laws when offering an ESOP to ensure the plan operates legally and benefits both the employer and the employees.

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