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ESOPs: What Retirement Benefit Options Can Be Offered to My Employees?

Posted by Michelle Buckley on Jan 31, 2019 8:00:00 AM

employee retirement benefit optionsAn employee stock ownership plan (ESOP) is a type of retirement plan that helps employees obtain ownership of the company they are employed by. An ESOP can be an exit strategy for an owner of a privately held company. There are different types of retirement plan options to offer employees if you are an ESOP.

Plan Types and Characteristics

401(k) plan

  • Opportunity for employees/owners to save
  • Contributions through payroll deduction
  • 401(k) pre-tax deferrals
  • 401(k) Roth deferrals
  • 401(k) match
    • Discretionary
    • Typically based on 401(k) deferrals

Safe Harbor 401(k)

  • Standard match of 100% of first 3% deferred and 50% of next 2% deferred
  • Standard nonelective 3% of compensation
  • Allows all employees, including highly compensated, to maximize 401(k) deferrals
  • Eliminates 401(k) nondiscrimination test
  • Notice required before plan year starts
  • Encourages employees to defer

Profit Sharing

  • Discretionary employer contributions
  • Allocation formulas
    • Based on compensation
    • Integrated with social security
    • Cross-tested formula
  • Allocations can be limited, last day and/or hours requirement

Cash Balance/Defined Benefit

  • Employer commits to paying an employee a specific benefit for life beginning at his/her retirement
  • Based on factors such as age, earnings, service
  • Earnings are the responsibility of the employer
  • Employers can generally contribute higher amounts than in other types of plans
  • Substantial benefits can be provided to key employees
  • Benefits can be offset with other plan benefits


  • Benefits to employees
  • Funding

Benefits to Employees

With so many choices available, it's a good idea to research what type of plan is best for you. Offering the right benefits and you can jumpstart your business’ growth. Check out our previous blog with some tips on how to determine if an ESOP is right for your business.

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*This blog was developed from a presentation that Michelle Buckley, CPA, AIFA® at Meaden & Moore and Florence Zabarsky, ERPA, QKA at Zabarsky & Associates, LLC gave at the 4th Annual Great Lakes Regional ESOP Conference in October, 2018.

Topics: Accounting & Auditing, ESOP

Michelle Buckley

Michelle Buckley

Michelle Buckley is a Vice President in Meaden & Moore’s Assurance Services Group with 23 years of public accounting experience.