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Home > Resources > ESOP > Who Participates in the ESOP?

Who Participates in the ESOP?

November 18, 2020 By Employee Benefits Law Group

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.

 

ESOP Participation

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.

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EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.

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