How to Invest in an ESOP

An ESOP or Employee Stock Ownership Plan is a special investment plan that allows employees to become stock owners in the company that they work for. They can buy the stock without incurring any of the traditional fees involved with stock purchases. An ESOP is considered an employee benefit, as it gives employees the chance to share in the company's financial successes.

Things You'll Need

• Required years of service

Instructions

1. Ask the human resources department at work about the requirements for participating in the ESOP. Typically, there is a length of service requirement, such as being employed for one full year at the company.

2. Request and wait for an information packet on the ESOP to arrive in your home mailbox once you meet all of the ESOP requirements. Expect it within two weeks of meeting the requirements.

3. Look over the information packet, paying special attention to any enrollment deadlines for investing in the ESOP. You should receive a form to fill out that authorizes money to be taken out of your paycheck each pay period for the ESOP investment.

4. Fill out the ESOP investment form. Enter in a firm dollar amount, a number of shares or a percentage of your income that you want invested in the ESOP each pay period. Submit this form to the appropriate office listed on the form. The amount you choose on the investment form can be changed at any time by request through your human resources department. The minimum and maximum amounts for investment vary by company and are listed in the ESOP agreement.

5. Review your ESOP agreement, which will tell you how you can sell the stock back. In general, you can't sell the bulk of it until retirement. If the company stock is not publicly traded, then you cannot sell it and must wait until retirement to cash out.

Tips & Warnings

• According to Ownership Associates, ESOP companies file for bankruptcy less often and perform better than non-ESOP companies.

• Pay special attention to any vesting periods, as you must be fully vested to withdraw all of the money from the ESOP.

• Each participant risks losing money if the value of the company's stock declines. This makes an ESOP a risky retirement plan.

References

• Investopedia: Employee Stock Ownership Plan - ESOP
• HR-Guide: Compensation - Incentive Plans - ESOP
• OA: "But What About United Airlines?" Answering Tough Questions

Resources

• What is an ESOP?
• Employee Stock Ownership Plan - ESOP