How to Legally Set up a Stock-Based Pension Plan for a Corporation

Setting up a stock-based pension plan is a smart incentive that can offer companies and employees a number of benefits. When employees know that their net worth increases as the business prospers, it can generate increased loyalty and production. Also, if the value of the company's stock decreases, the company itself doesn't have to deposit funds to bolster employee pensions, as may be required in other forms of plans.

Understand Stock-Based Pension Plans

Consider what kind of pension plan fits your needs. All pension plans fall into one group: defined benefit or defined contribution. Defined benefit plans tell employees exactly how much they will receive at retirement. Defined contribution plans tell them how much will be invested on their behalf, while the value at retirement will reflect market gains or losses.

Discuss the risks of stock-based pension plans with company members. If the company's stock drops to nothing, so do the benefits to be received at retirement.

Know that stock-based pension plans are called Employee Stock Ownership Plans (ESOPs).

Set Up Your Stock-Based Plan

Find a corporate attorney to help you legally set up a corporate trust fund into which you will deposit stock (see Resources below).

Fill out Form 5500 every year (see Resources below). This form is required by the United States Department of Labor and provides accounting and employee information to the government. It's important to stay legally compliant with all of your pension plan accounting to avoid audits and fines.