Summary of employee stock ownership plans (ESOPs)

By Steve Savant

Ash Brokerage Corporation


The ESOP is essentially a stock bonus plan in which employer stock may be used for contributions. Maximum annual deduction: up to 25 percent of covered payroll (and up to 25 percent for a leveraged ESOP) can be contributed and deducted by the firm. Individual limits: For 2013, the annual allocation of contributions to a participant’s account may not exceed the lesser of 100 percent of includable compensation or $51,000 per year. If the plan is a KSOP permitting participant deferrals, participants aged 50 and older may also make a $5,500 “catch-up” contribution.

Most plans are discretionary to the amount that the employer contributes. If there are profits, the employer is expected to make substantial and recurring contributions. For a C-corporation, up to an additional 25 percent of covered compensation may be contributed and deducted if this contribution is used to repay the principal of a loan used by to the plan to acquire employer stock. Contributions used to pay interest on loans used to acquire stock are deductible without limit. Steve and Keriti summarize the entire week on ESOPs and package the main items of value to an employer.