ESOP distributions are made in the form of cash or stock. Our video provides more information on how ESOP benefits are distributed.
ESOP benefits are distributed either in cash or stock depending upon the design of the plan and the corporation involved. There are numerous exceptions and alternatives available and distribution provisions may be designed to achieve certain corporate objectives, but long story short, for most closely held corporations a cash distribution results from either exchanging cash or stock within the plan, paying out the benefit, redeeming stock back to the corporation and paying out the benefit or paying out the shares to the participants and immediately repurchasing those shares to the corporation.
Now there is a statutory requirement that ESOP participants have the right to take stock and the right to sell the stock back to the company under something we call the put option rules, but once you apply all the rules, exceptions, and the design options available, more often than not you’ll wind up with cash distributions being made to participants.