Each year the company pays back part of the principal on its ESOP loan. The loan payments are made through the ESOP to the bank. The payments, therefore, are considered deferred income, like contributions to a pension plan (which is exactly what they are). This payment releases the stock in the suspense account to the individual accounts. The stock is released in amounts proportionate to the amount of the loan which is repaid. If the company pays 1/10 of the loan then 1/10 of the stock in the suspense account is released or allocated into the individual accounts. The number of shares allocated to individual accounts depends on the amount of the company's contribution and the allocation formula established by the ESOP. Under DOL guidelines, allocations must be based on a fair formula. For example, hours worked, W-2 earnings, equally, a combination of these, or some other formula that meets federal guidelines. Once the stock is allocated to individual accounts, it is subject to a vesting schedule, like other pension plans. Vesting in an ESOP works just as it does in a regular pension plan. Although stock may be allocated to your account, you do not have a full claim on it until you are 100% vested. Federal law requires that employees be completely vested after seven years of being in the plan, although many ESOPs vest more quickly.