What Is An ESOP? An Inside Look At What It Means To Be An Employee Owner
Have you ever wondered what it means when companies call themselves employee-owned? Or maybe you’ve heard of an ESOP, but you’re not really sure how it works?
If you’re ready to take more control over your career and work for a company that values your contributions, then it’s time we took a deep dive into the world of ESOPs.
So grab your swimsuit and nose plugs because we’re about to take a dip!
How An ESOP Works For The Company
Employee Stock Ownership Plans (ESOPs) act as an employee benefit plan. They allow a company’s employees to become owners of that company.
By regularly giving shares of the company to its employees, a company should see a number of benefits, such as increased employee productivity, stronger retention, and improved job satisfaction. In turn, a company may experience higher profitability, lower turnover, and is more able to recover from economic downturns.
At ASEC, we are an employee-owned small business. We are proud to be able to offer our employees an employee stock option plan and all the benefits it entails. Our mission is to make sure everyone who works at ASEC has a sense of ownership in the success of the company.
How An ESOP Benefits Employees
Since an ESOP is a company-funded retirement plan (similar to 401K and profit-sharing plans) that provides tax deferred investments for employees, it is an investment in its employees’ futures.
What does this mean for the employee-owner? And what about for the company?
As an employee, you will accumulate capital for your future retirement at no cost to you whatsoever, while the company gets the benefit of ensuring that their interest and the employee’s interest stays aligned.
At this point you may be thinking that it sounds like being a part of an ESOP gets you free money.
Every year ASEC contributes a percentage of your salary to a trust in your name. The specific amount of that percentage is determined after an independent audit is done from the previous year.
The annual profit and growth of the company, which are a direct result of your hard work as an employee during the year, will generally affect the value of the shares of company stock that get allocated to your personal account.
Contributions will vary from year to year, but as an employee owner you could expect to see amounts ranging from 2% to 4% of your annual salary.
Instead of other retirement plans where you’re donating a portion of your paycheck, your only contribution to this plan is your dedication to the company, your career, and to our mission of supporting our nation’s warfighter.
The Tax Benefits Of An ESOP
With an Employee Stock Option Plan, a company’s employees don’t pay tax when their shares are contributed to the ESOP. Instead, those taxes come with the distribution, at a rate that is favorable to them.
What’s more, these distributions are allowed to be rolled into an IRA (or comparable retirement plan) while they accumulate gains, meaning they can be taxed as capital gains later.
The Disadvantages Of An ESOP
Now that you’ve heard your hard work at ASEC is rewarded with both a paycheck and shares of the company you’re supporting, you must be wondering what the drawbacks to an ESOP are.
You know, what’s the fine print?
There really isn’t any. We promise! You are eligible to receive a distribution of the vested plan benefit allocated to your accounts beginning at a certain period after your separation from employment with ASEC.
For example, if you retire at the age of 65, you’d receive your ESOP distribution starting the following year in up to 5 equal annual installments; amounts below $10,000 would be paid in a lump sum.
Join ASEC, And Be A Part Of Our ESOP
We hope we’ve piqued your interest in ESOPs and what it means to be an employee-owner. This plan is yet another way ASEC rewards its employees for their hard work and commitment to the organization. If you’d like to be a part of an employee-owned company, we encourage youto learn more about ASEC here, then view our open job opportunities here.