Typically, employees receive the stock allocated to their individual account (distribution) at retirement. A distribution can be in stock or cash, depending on the plan rules. If the stock is not readily tradable (not traded on a public stock exchange), the participant has the right to exercise a put option, which is a right to sell back the shares to the company. In turn, the company has an obligation to purchase your shares. The company is required to repurchase the shares distributed to you at the price determined by the valuation of the ESOP stock for that year. Valuation is a determination of the "fair market value" of the stock. Federal guidelines specify that valuations should be conducted at least annually, and that they should be done by a qualified, independent appraiser.

Once the put option is exercised and the stock value is determined, the retired (deceased, disabled or terminated) employee is assured of payment of his or her account balance. However, the company may choose to pay in one lump sum, or in installments with interest over a maximum of five years.

Fair market value is the amount at which an asset would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts.