In this video, Kevin Long discusses the dividend reinvestment election for ESOPs.
ESOP participants can certainly be given the opportunity to elect to invest ESOP dividends in employer stock within the plan. However, more often than not the use of dividends within the plan is dictated by the need of the trustee to use the dividends for payments on an ESOP loan or the ESOP will pass through the dividend to participants. The dividend reinvestment election is much more prevalent for public company ESOPs that are buying shares on the open market.
Learn More About ESOP Dividends
The National Center For Employee Ownership (NCEO) offers information on the deductibility of dividends paid on ESOP-held stock in ESOP Tax Incentives and Contribution Limits.