Employee Stock Ownership Plan

A defined contribution plan for which the primary investments are employer stocks (stocks of the employer that sponsors the plan).

 

In order to be treated as an Employee Stock Ownership Plan (ESOP) under the tax code, the plan must meet certain requirements, including the following:

 

The plan must be formally designated as an ESOP in the plan document.

 

The plan must specifically state that it is designed to invest primarily in qualifying employer securities. As such, a money purchase pension plan or a stock bonus plan constituting an ESOP may invest part of its assets in other assets ( other than qualifying employer securities).

 

(Source: Retirement Dictionary)