Employee Stock Ownership Plans (ESOPs) – Know Your Rights

May 1, 2025

If you are an employee who participates in an Employee Stock Ownership Plan (ESOP), you have certain rights designed to protect your interests and ensure the plan’s fiduciaries live up to their obligations. These rights include access to essential information and the ability to take legal action if necessary. This article describes the key rights you have but is not an exhaustive list. For more information or assistance, please use the Contact Us box below.

1. Right to Receive Information. Your ESOP plan sponsor is required to provide a Summary Plan Description, which summarizes the rules of the ESOP, including how and when you can receive your benefits and who to contact for questions. Each year, you are also entitled to receive a Summary Annual Report, which details the plan’s activities and assets. Additionally, you should receive an annual Account Statement showing the number of shares you hold, their current value, and your vested status. Finally, you have a right to view or request a copy of the formal plan document, which provides a comprehensive explanation of how the ESOP operates.
2. Vesting Rights. When you start participating in an ESOP, you receive stock, but you might not fully own that stock right away. Instead, you “vest” in the stock over time, depending on the terms of the plan. Note that if you leave the company before you are fully vested, you may lose some or all of the stock in your account. If your ESOP has a graduated vesting schedule, you will typically earn the right to 20% of your stock each year after two years of service and become fully vested after 6 years. Or, if your ESOP uses “cliff vesting,” you typically become fully vested after three years of service.
3. Right to Receive Your Shares. The rules for cashing out your ESOP shares are described in your Summary Plan Description and plan document. Typically, you can access your shares if you meet a specific vesting requirement and experience a qualifying event such as termination, retirement, or disability. Your plan sponsor must explain how you can receive your benefit and any tax implications.
4. ESOP Voting Rights. Depending on your plan, you may have the right to vote on important company matters, such as mergers, sale of assets, and Board elections. These voting rights are exercised by an ESOP trustee, who is a fiduciary responsible for acting in the best interest of the ESOP’s participants.
5. Right to File a Claim. If you believe your rights under the ESOP are being violated or if you have an issue related to the plan, you have the right to file a claim. This can include concerns about receiving your ESOP benefit, the amount of your benefit, access to documents, or other violations of plan rules. Make sure to follow the claims process detailed in your ESOP documents. If your claim is denied, you also have a right to appeal that decision.
6. Right to Take Legal Action. Participants are protected under the Employee Retirement Income Security Act (ERISA), which offers legal safeguards for enforcing plan rights. Under ERISA, individuals managing the plan must act in the best interests of participants, ensuring loyalty, care, and prudence. ESOP participants can go to court to protect their accounts and the ESOP if they believe the plan’s fiduciaries are not fulfilling their duties properly.

In summary, ERISA provides you with rights to ensure transparency, fairness, and accountability in the management of your ESOP.  If you believe your rights are being violated or have concerns that your ESOP is not being managed properly, please use the Contact Us box below.