ESOP dividends are earnings of the trust and subject to the investment decisions of the ESOP trustee. Learn more about who decides how to use ESOP dividends in our video.
ESOP dividends are typically planned for and structured when transactions are put together and there’s an understanding between the trustee and the corporation as to what those dividends are going to be used for.
For example, when an ESOP loan is in place, the best use of the dividends is typically to pay down the loan. Where an ESOP is coupled with a 401(k) plan, there may be an understanding with the ESOP trustee that dividends are going to be paid and participants are going to be given the opportunity to elect to move money into their 401(k) accounts or make the dividend reinvested election.