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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 York, as in other states, an Employee Stock Ownership Plan (ESOP) is governed by federal law, specifically the Employee Retirement Income Security Act of 1974 (ERISA). ESOPs are considered tax-qualified, defined-contribution, employee benefit plans designed to invest primarily in the stock of the sponsoring employer. They are a means for employees to hold an ownership stake in the company. The ESOP is funded by the employer, who makes tax-deductible contributions in the form of company stock or cash to buy company stock. The employees gain rights to the stock over time through a process called vesting. Upon retirement or leaving the company, employees can sell their stock back to the company or on the market, depending on the company's policy. It's important to distinguish ESOPs from employee stock option plans, which are not retirement plans but rather incentives that allow employees to purchase stock in the future at a predetermined price, potentially profiting if the stock price increases.

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