Employee Savings Plan (ESP) Definition, Types, Tax Benefits [Video]

An employee savings plan (ESP) is a plan provided by an employer that allows employees to set aside a portion of their pre-tax wages for retirement savings or other long-term goals, such as paying for college tuition or purchasing a home.

Many employers match their employees’ contributions up to a certain dollar amount, or a certain percentage. A popular ESP in the U.S. is the 401(k) retirement plan, which offers four types of plans.

Employees are always fully vested in their own employee savings plan contributions. However, many plans require that employees remain employed for a minimum amount of time before they are vested and eligible to withdraw employer-matched funds.

ESPs can be an attractive and relatively easy way for employees to lower their taxes and save for long-term goals. In fact, with the phasing out of corporate defined-benefit pension plans, ESPs are becoming the sole option for individuals to save for retirement …