A KSOP is essentially a unique form of retirement plan in which employers merge two distinct plans—an employee stock ownership plan (ESOP) and a 401(k)—into one. Instead of matching employee contributions with cash as traditional 401(k)s do, employers match contributions to KSOPs with stocks.

The primary benefit of a KSOP over traditional 401(k) options are that they are defined-benefit plans, meaning they have lower initial costs associated with them. Operating separate ESOPs and 401(k)s can be time consuming and expensive. By bundling these two plans together, employers can reduce overhead costs.

The additional cost-savings benefits of a KSOP come at a price, however. As opposed to traditional 401(k)s, KSOPs bring greater risk to plan-holders. With more variability in the character and value of stock contributions, plan-holders must take into account the potential volatility of the market when deciding whether a KSOP is the right choice for retirement planning. Furthermore, since stocks issued through a KSOP are usually not as liquid as cash or other investments, it may be difficult or impossible to generate income during retirement to supplement other sources of income.

For companies looking to reduce costs and offer employees an opportunity to grow their retirement savings through stock ownership, a KSOP may be worth considering. However, the higher risk associated with these plans requires an in-depth analysis before the decision to opt-in is reached. Plan-holders should thoroughly research their options and understand the associated risks before committing to a KSOP.