An employee stock ownership plan (ESOP) is a retirement plan in which an employer contributes its stock to the plan for the benefit of the company’s employees. This type of plan should not be confused with employee stock option plans, which give employees the right to buy their company’s stock at a set price after a certain period of time.

In Maryland, an Employee Stock Ownership Plan (ESOP) is recognized as a type of employee benefit plan that provides workers with an ownership interest in the company. ESOPs are governed by federal law, specifically the Employee Retirement Income Security Act (ERISA) of 1974, and the Internal Revenue Code. These laws set the standards for ESOP establishment, operation, and provide tax benefits for both employers and employees. Under ERISA, companies must follow specific fiduciary and reporting requirements to ensure the plan is operated for the exclusive benefit of employees. The contributions of company stock to the ESOP are tax-deductible for the company, and employees typically do not pay taxes on the contributions until they receive distributions from the plan, usually upon retirement, termination, or other qualifying events. Maryland does not have specific state statutes that regulate ESOPs, so the federal guidelines are the primary governing rules for ESOPs in the state. It's important for companies considering an ESOP in Maryland to consult with an attorney experienced in ERISA and tax law to ensure compliance with all federal regulations.