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 Washington State, as in the rest of the United 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 the standards for ESOP establishment, operation, and provide specific tax advantages to encourage companies to offer them. The ESOP allows employees to become beneficial owners of the stock in their company without having to purchase the stock directly. Contributions to the plan are typically made by the employer and are tax-deductible, and employees pay no tax on the contributions until they receive the stock upon leaving or retiring from the company. It's important to distinguish ESOPs from employee stock option plans, which are compensation programs that give employees the right to purchase company stock at a future date at a predetermined price. An attorney specializing in employee benefits or tax law can provide detailed guidance on setting up and maintaining an ESOP in Washington State.