An Employee Stock Ownership Plan is a defined contribution plan that is designed to invest primarily in stock of the employer. An ESOP can be an entire plan or it can be only a component of a larger defined contribution plan. ESOPs are subject to additional requirements that do not apply to other plans that hold employer stock, e.g., voting rights must generally be passed through to ESOP participants, participants must generally have the right to receive benefits in the form of employer securities, and certain ESOP participants must be given the right to diversify a portion of their plan benefits.

In addition, certain benefits are available to ESOPs that are not available to other types of qualified plans that hold employer stock, e.g., an employer security held in an ESOP may be purchased with loan proceeds. The employer may deduct dividends paid on stock held by an ESOP if the dividends are used to repay a loan, are distributed to plan participants, or if they are reinvested in the ESOP by plan participants.