An ESOP is a trust to which a company contributes shares of newly issued stock, shares the company has held in reserve, or the cash to buy shares on the open market.
The shares go into individual accounts set up for employees who meet the plan's eligibility requirements.
An ESOP may be part of a 401(k) plan or separate from it. If it's linked, an employer's matching contribution may be shares added to the ESOP account rather than cash added to an investment account.
If you're part of an ESOP and you leave your job, you have the right to sell your shares on the open market if your employer is a public company.
If it's a privately held company, you have the right to sell them back at fair market value. The vast majority of ESOPs are offered by privately held companies.
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