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Stock Bonus Plans & ESOPs

Stock bonus plans are similar to profit sharing plans in that they are non-pension plans under which benefits are distributable in employer stock. Most stock bonus plans provide for a discretionary contribution formula and may adopt various allocation formulas. Stock bonus plans may, but are not required to, invest in employer stock.

ESOPs (Employee Stock Ownership Plans) may be a stock bonus plan, or a stock bonus plan and money purchase plan. The ESOP must be designed to invest primarily in employer securities. The contribution and allocation formulas under an ESOP normally operate under the same rules as profit sharing plans.

Only employers that issue stock may establish these types of plans. The plans are very specialized types of arrangements that should be established with specific objectives in mind. Som employers believe that by envesting the plan in employer stock, employees will take a more active role in the business and have more loyalty to the company.

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Last Updated: 9/23/2012 10:05:00 PM