Since an ESOP is a qualified retirement plan, it is subject to the same eligibility and coverage rules as other plans such as profit-sharing plans. Watch our video to learn more about who participates in the ESOP.
Generally, the ESOP plan covers all employees who have a year of service in which they work 1,000 hours, have reached age 18 or age 21 depending upon the design of the plan, and may also include a provision that allocates benefits to participants who are only there on the last day of the plan year.
One exception to the general coverage rule that’s not available to ESOPs is that an ESOP cannot be aggregated with another retirement plan to cover the entire workforce of the company. For example, you cannot have half of the employees in the ESOP and half in the profit-sharing plan. The ESOP has to cover all of the employees of the corporation to pass the discrimination tests.