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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 Rhode Island, as in other states, an Employee Stock Ownership Plan (ESOP) is a type of retirement 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, including eligibility, vesting, distribution, fiduciary responsibilities, and the tax benefits for the company and its employees. The primary distinction between an ESOP and employee stock option plans is that ESOPs provide employees with stock ownership, often at no upfront cost, while stock option plans give employees the right to purchase stock at a future date at a predetermined price. Rhode Island does not have specific statutes that regulate ESOPs beyond the federal framework, but state laws regarding corporations and employment may indirectly affect how ESOPs operate within the state.

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