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employee stock ownership plan (ESOP)

A type of defined contribution benefit plan in which most or all of the assets are invested in the employer's stock. Contrary to how it sounds, employees do not individually buy shares in the company through an ESOP. Rather, the company contributes shares to the plan, and the plan buys additional stock with loans to be repaid by the company. (The ability to leverage the plan has significant tax benefits.) "Vested" employees receive a payout of benefits when they leave the company.

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