DEFINITION of ‘Employee Trust’

An employee trust is a fund that an employer establishes on behalf of its employees. In an employee trust the company is the grantor and its employees are the beneficiaries. The person responsible for managing the employee trust or assets of the trust is called the trustee.

BREAKING DOWN ‘Employee Trust’

The most common forms of employee trusts are employee stock ownership plans (ESOP) and employee pension plans. With an ESOP, a company contributes to a trust fund, and the trustee purchases stock on behalf of the employee/beneficiaries. Pension plans earmark funds for the employee for post-retirement income. In both cases, the employee is the beneficiary.

Employee Trust and ESOP

Breaking down ESOP even further: this is a qualified defined-contribution or DC employee benefit plan, designed to invest primarily in the stock of the sponsoring employer. ESOP plans are covered under (ERISA) or the The Employee Retirement Income Security Act of 1974. ERISA sets minimum standards for participation, vesting, benefit accrual and funding for these employee plans. For example,…