What is an S Corporation ESOP?
A Subchapter S corporation is a business entity that provides flow-through tax treatment to its shareholders. An employee stock ownership plan (ESOP) is a qualified defined contribution plan that provides a company's workers with retirement savings through their investments in their employer's stock, at no cost to the worker. ESOPs are regulated by the Employee Retirement Income Security Act (ERISA) just like pension funds, 401(k) plans, and other qualified retirement plans. Congress authorized the S corporation ESOP structure to encourage and expand retirement savings by giving hundreds of thousands of American workers in all 50 states the opportunity to have equity in the companies where they work. Today S ESOPs accomplish exactly what Congress intended them to do: create jobs, generate economic activity and promote retirement savings.