There are a number of reasons why an ESOP may be frozen or terminated. In our video, learn about freezing or terminating an ESOP.
Ending an ESOP
Since terminating an ESOP and completely winding up an ESOP trust necessitates buying out all of the shares of the ESOP to create the liquidity to pay out benefits, companies often will freeze an ESOP and wind the ESOP down. What this means is the board of directors adopts a resolution that declares that contributions to the plan are ceasing and that all participants in the plan are 100% vested.
At that point, no more participants enter the plan and no future contribution allocations are made. Over time as employees leave the company and become eligible for distributions from the ESOP, stock is paid out of the accounts according to normal attrition.