ESPPs: Rules
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Articles
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Matt Simon
Your employee stock purchase plan (ESPP) may be one of the best benefits your company offers. However, to maximize its value, you must know its key dates and terms. This article explains the basics you need to know for your ESPP participation.
Alisa Baker
Part 1 looked at the basic structural elements and terms of employee stock purchase plans (ESPPs). Part 2 considers more advanced design concepts, including tax code limits and enrollment rules.
Bruce Brumberg
Employee stock purchase plans (ESPPs) are popular and prevalent at most public companies. However, the structure of these plans is changing. These modifications may affect your decision to participate in your ESPP and its place in your financial planning.
Bruce Brumberg
myStockOptions.com
PowerPoint presentation (in PDF) that Bruce Brumberg, editor-in-chief of myStockOptions.com, developed for talks and meetings on the basics of employee stock purchase plans. Covered topics include types of ESPP, the ESPP tax treatment, and survey data on the use of ESPPs by companies. (Premium members may request permission to use it at their companies.)
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This depends on the structure of your plan and whether there is a discount and a lookback feature for the purchase price...
The price will not necessarily be discounted, as this depends on the structure of your ESPP. The tax rules require only that...
Employee stock purchase plans cannot be "underwater" in the traditional sense of having a purchase price greater than the current stock price. Down markets can create special opportunities and unique issues for ESPPs. For example, with an ESPP...
In general, all employees at your company (or its designated subsidiaries or parent company) are eligible to participate in a tax-qualified Section 423 ESPP as long as certain conditions are met. You need to be...
Technically, no, if you go by the wording of the tax code for qualified ESPPs under Section 423. For nonqualified ESPPs, companies can...
ESPP after-tax contribution limits vary by company requirements and are also subject to...
Procedures, rules, eligibility, and contribution amounts vary from company to company. Generally, however, you enroll in an ESPP by...
You want to check your plan documents, such as your enrollment form, to find out. If the period of enrollment is unclear...
This is an important date to participants in an ESPP. The enrollment date is usually the first day of...
The grant date is usually the first day of the offering period. This is an important date because...
During an offering period payroll deductions are accumulated. Shares are typically purchased under the plan at the end of the offering period...
The maximum ESPP "option" term (i.e., offering period) is 27 months for plans with a lookback feature but...
Some companies interchangeably use the terms "offering period" and "purchase period" when these are the same length (e.g. six months). Other companies have...
This is the last day of the offering (or purchase) period...
Payroll contributions that accumulate during the offering period...
A lookback is a provision in certain tax-qualified ESPPs. A lookback provision bases the purchase price not on the stock price at the time of purchase but, rather, on the...
Generally, yes. Under most ESPPs, participants can withdraw from the plan at any time before the...
Generally, participants who withdraw from the plan...
As should be indicated on your enrollment form...
Not usually, under the traditional employee stock purchase plan. Once you stop deductions you cannot start them again in the same ESPP offering period. However, companies...
Yes, usually with a deadline for when the change must be made within each purchase period or quarter. ESPPs generally permit participants to...
This ability to carry over remaining contributions in an employee stock purchase plan depends on the reason for the unused funds from your payroll deductions. Situations can also occur in which the leftover contribution amount is...
It depends on the provisions of your company's plan and the length of the offering period. With some ESPPs you must complete a subscription agreement authorizing payroll deductions by...
Internal Revenue Code Section 423 imposes a $25,000 annual purchase limit on ESPP participants (your company can impose a lower limit on the dollar amount you can contribute to buy shares). What this means is that you may not...
When an offering period spans more than one calendar year (with multiple six-month purchase periods), whatever you do not use up in year one will be...
This depends on the system or firm your company uses for administration. Either you will receive a periodic statement of your account in print or you will get access to it online. It will show...
Some companies may allow this, but...
No, unless you are deemed to be an "affiliate" of your company or your company has a...
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Key Dates And Terms You Must Know For Your Company's ESPP 
