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What Is the Difference Between Freezing an ESOP And Terminating It?

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There are a number of reasons why an ESOP may be frozen or terminated. In our video, learn about freezing or terminating an ESOP.

 

Ending an ESOP

Since terminating an ESOP and completely winding up an ESOP trust necessitates buying out all of the shares of the ESOP to create the liquidity to pay out benefits, companies often will freeze an ESOP and wind the ESOP down. What this means is the board of directors adopts a resolution that declares that contributions to the plan are ceasing and that all participants in the plan are 100% vested. 

At that point, no more participants enter the plan and no future contribution allocations are made. Over time as employees leave the company and become eligible for distributions from the ESOP, stock is paid out of the accounts according to normal attrition.

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EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.