What makes an employee stock purchase plan a good deal?
SPONSORS OF THIS ISSUE
EATON VANCE INVESTMENT MANAGERS: Goals-based solutions for optimizing wealth (see the ad below)
- THINK TWICE training videos for insider-trading prevention: Educate, entertain, and scare your employees and executives into compliance (see the ad below)
- ADVISORFIND DIRECTORY from myStockOptions.com: Search this resource for financial, tax, and legal advisors with experience in stock compensation (see the ad below)
| EDITOR'S WELCOME |
This issue of our quarterly newsletter showcases some of our award-winning content on employee stock purchase plans (ESPPs). Below you will find information about FAQs, articles, podcasts, and videos that give a taste of our expertise on this and every other topic in stock compensation. For much more, see our ESPP section and the ESPP portions of the Tax Center. Thanks for reading!
Don't want to wait for our quarterly newsletter updates? The myStockOptions.com Blog is the best way to stay on top of equity compensation news and the latest developments at our website. You can also follow us on Twitter.
This summer marked 18 years since we launched myStockOptions.com. Thank you for using our website and for your support and feedback over the years. We continue to enjoy helping stock plan participants, ESPP participants, and their companies get more value from equity plans.
—Bruce Brumberg (Editor-in-Chief)
|
What makes an employee stock purchase plan a good deal? |
What makes this employee benefit attractive is that you can purchase company stock at a discount (up to 15% for a tax-qualified Section 423 ESPP, depending on your company's ESPP structure). You pay no commission on the purchase. In addition, you get favorable tax treatment when you hold the shares long enough. It's an even better deal when your ESPP has a lookback provision. This bases the purchase price discount on the lower price at the start of the offering after the stock price has substantially jumped by the purchase date. You profit even if the stock price has fallen by the purchase date, as an ESPP cannot go underwater, because with a lookback the discount comes off the lower price of either the offering or the purchase-date market price.
Example: Your company uses a 15% discount with a six-month lookback.
- The offering date price is $10.
- The stock market price on the purchase date is $20.
- Your purchase price is thus $8.50.
- If instead the stock price had fallen to $8 on the purchase date, your purchase price would be $6.80.
- In the price-gain situation, your increase is 135% ($11.50 spread at purchase divided by $8.50 purchase price).
- Even in the price-drop example, you gain by 17.64% ($1.20 spread at purchase divided by $6.80 purchase price).
Example with 10% discount: Your company uses a 10% discount with a six-month lookback.
- The offering date price is $10.
- The stock market price on the purchase date is $12.
- Your purchase price is thus $9.
- If instead the stock price had fallen to $8 on the purchase date, your purchase price would be $7.20.
- In the price-gain situation, your increase is 33% ($3 spread at purchase divided by $9 purchase price).
- Even in the price-drop example, you gain by 11% (80 cents spread at purchase divided by $7.20 purchase price).
- Plus, this is the appreciation on your money for just six months!
Example without lookback: Your company still uses a 10% discount and a six-month offering period.
- When the stock market price on the purchase date is $12, your purchase price is thus $10.80.
- If instead the stock price had fallen to $8 on the purchase date, your purchase price would be $7.20.
- In the price-gain situation, your increase is almost 11% ($1.20 spread at purchase divided by $10.80 purchase price).
- In the price-drop example, you gain by 11% for six months (80 cents spread at purchase divided by $7.20 purchase price).
- In the down market, the pre-tax gain is identical to an ESPP with a lookback.
Another advantage of an ESPP is that you can easily sell the shares for immediate or long-term savings needs; by contrast, company stock in your 401(k) plan can be sold only for other investments in the plan. Of course, your final net gain in these examples depends on the stock price when you sell the shares and on the taxes. The special tax requirements and treatment pertaining to Section 423 ESPP shares are detailed in the FAQs of the section ESPPs: Taxes. For more on the possible financial gains from ESPPs, see a related article.
Eaton Vance offers strategies and tools to help financial advisors and investors:
- Diversify or manage the risks of concentrated stock holdings
- Design a tax-managed completion portfolio around a concentrated security
- Enhance risk-adjusted portfolio returns and generate current income
- Minimize capital gains and other taxes
Financial advisors: Call our Wealth Strategies Group at 617-672-8500.
Return to table of contents
|
What are the top 10 questions I should ask about my company's employee stock purchase plan? |
Employee stock purchase plans (ESPPs) can be designed in different ways and provided with various features that make them appealing to participants. Before you enroll in your company's ESPP, however, you should be sure to know the answers to the following questions.
1. What type of ESPP is it?
2. Am I eligible to participate?
3. Does the ESPP have a purchase discount?
4. Does the plan have a lookback feature?
5. How long is the offering period?
6. Are there purchase periods within the offering period? If so, does the plan have a reset provision?
7. How do I enroll in the ESPP? Once enrolled, am I automatically enrolled in subsequent offering periods?
8. Is there a maximum contribution amount/percentage and number of shares I can purchase with my eligible compensation?
9. How and when can I increase or decrease my contribution percentage, or withdraw from an offering?
10. What account is used for purchased shares? Is there a mandatory holding period in that account after share purchases?
In addition, you should understand the tax treatment, and you should familiarize yourself with the documents that your company provides in printed and/or online form.
|
Articles, Videos, And Other Resources On ESPPs |
Below we list selected articles, videos, and podcasts about ESPPs in the award-winning content of myStockOptions.com. The extensive section on ESPPs at myStockOptions.com is complemented by an interactive quiz and a self-study course and exam for CFP and CEP continuing-education credits. All of this content is available with Premium or Pro Membership or through corporate licensing.
ARTICLES
Six ESPP Essentials, by the myStockOptions editorial team
This two-part article series explains important ESPP aspects and concepts in plain English. Part 1 discusses the basics of ESPP participation, such as enrollment rules, plan types, and offering/purchase periods. Part 2 covers holding periods, tax rules, and the impact of various events, both personal (e.g. job loss) and corporate (e.g. M&A).
ESPPs 101: Key Dates And Terms You Must Know, by the myStockOptions editorial team
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.
ESPPs 101: Taxation Made Simple, by the myStockOptions editorial team
To make the most of your company's ESPP, you must understand the tax consequences of participation. This article explains the basics of ESPP taxation.
Fundamentals Of Employee Stock Purchase Plans, by Alisa Baker
Your company's employee stock purchase plan (ESPP) may be one of your best employee benefits. However, to maximize the value of your ESPP, you need to understand how it works. This four-part series covers all aspects of ESPPs, from the basic to the complex. Part 1 is free to all registered users of the site.
The Great Benefits Of Your Company's Employee Stock Purchase Plan, by Sandra Sussman
Strangely, many employees don't take advantage of their companies' employee stock purchase plans. This article will show you exactly why ESPPs are a good deal.
Ten Financial-Planning Rules Every ESPP Participant Should Know, by the myStockOptions editorial team
Employee stock purchase plans (ESPPs) are a super deal. However, the related taxation and financial planning can be deceptively complex. This article presents the essential points that you should understand before you participate in your company's ESPP.
ESPP Contribution Limits And Why They Matter To You, by Bruce Brumberg
If you are enrolled in a tax-qualified employee stock purchase plan, the amount of company stock that you are allowed to purchase is limited. You will want to keep this in mind when you allocate part of your salary to your ESPP. Read this article to understand how the contribution limits affect your ESPP planning.
IRS Form 3922 For ESPPs: What You Need To Know, And How It Can Help You Understand ESPP Taxation, by Bruce Brumberg
Stock purchases made through an ESPP during a calendar year are reported to you and the IRS on Form 3922 early in the following year. This article explains what you need to know about the information on the form, and how the form can help you better understand the complexities of ESPP taxation.
Employee Stock Purchase Plans And Your Financial Planning, by Bruce Brumberg
ESPPs are popular and prevalent at most public companies. However, the structure of these plans is changing. As this two-part article series shows, these modifications may affect your decision to participate in your ESPP and its place in your financial planning.
ESPP Choices: Flip Or Hold?, by Timothy Farmer and Gregory Geisler
After you decide to participate in your company's ESPP, you must choose whether to sell the stock soon after purchase or to hold it (and for how long). This two-part article series examines different ways to participate in your ESPP according to relative risk tolerance, timeframe, and needs for money.
VIDEOS
Employee Stock Purchase Plans (ESPPs): Core Concepts & Benefits
Running time: 3:35. Bruce Brumberg, the editor-in-chief of myStockOptions.com, clearly explains both the fundamentals of employee stock purchase plans (ESPPs) and the benefits that ESPPs can provide. Using animated examples, this video covers key ESPP concepts, including the offering period, the purchase date, lookbacks, and discounts.
Employee Stock Purchase Plans (ESPPs): Key Rules & Decisions
Running time: 2:53. Bruce Brumberg, the editor-in-chief of myStockOptions.com, clearly explains the important rules you must know and the key choices you will have to make when you participate in an employee stock purchase plan (ESPP). Topics include ESPP features and the related basic financial-planning concepts.
Employee Stock Purchase Plans (ESPPs): Taxes
Running time: 4:24. Bruce Brumberg, the editor-in-chief of myStockOptions.com, clearly explains the five key tax rules you must know when you participate in an employee stock purchase plan (ESPP). Illustrated by animated examples, the covered concepts include the special rules that depend on how long you hold the shares.
PODCASTS
Podcast! Basics Of ESPPs, by Bruce Brumberg
In this eight-minute podcast, the editor-in-chief of myStockOptions.com explains how ESPPs work, including enrollment, offering periods, lookbacks, purchase, and taxation.
INTERACTIVE QUIZ
Test your smarts with our free interactive quiz on ESPPs. In addition to being fun, the quiz is also a course of study. The answer key links to content on the topic for followup reading.
PRESENTATION
Employee Stock Purchase Plans: Qualified And Nonqualified Plans, by Bruce Brumberg
Bruce Brumberg, editor-in-chief of myStockOptions.com, developed this presentation 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 the PowerPoint version at their companies.)
|
Insider-trading prosecutions are a major priority of the SEC and the Justice Department. For two decades, the dramatic Think Twice video series has been a vital training and compliance resource for thousands of corporations and law firms trying to prevent insider-trading violations. The Think Twice videos are celebrated for enhancing the value of corporate education by entertaining viewers with compelling stories. Used by over 1,000 companies and developed with input from the SEC Enforcement Division, these powerful and memorable story-lines will drive home key points on:
For more information on the Think Twice video series, and a free white paper on insider trading prevention and education, see the Think Twice website. Both DVD and VHS formats are available. Qualified corporate buyers, including new IPO companies, can request free previews. Intranet licensing is available. |
| Visit myStockOptions At NASPP 2018: Exhibit Hall And Financial-Planning Session |
We are excited about the NASPP's annual conference, being held this year in San Diego (Sept 25-28). As always, myStockOptions.com will have its cheerful booth in the exhibit hall, where our editor-in-chief Bruce Brumberg will be available as an NASPP-designated expert to answer questions on stock plan education/communications and equity comp taxation. If you attend the conference, please stop by our exhibit booth for a chat and pick up a myStockOptions.com souvenir!
In addition, Bruce is presenting at an NASPP Power Session on September 28 (that Friday morning) called Financial Planning Strategies for Employees. Joining Bruce in this interactive session will be James Fucigna, a leading Wealth Management Director at Morgan Stanley.
AdvisorFind Directory Stock compensation raises many questions.
While myStockOptions.com is a good place to learn about concepts, issues, and general strategies in equity compensation, at some point you may need an advisor to help with your unique situation. Yet finding a good advisor can be hard when you are busy and don't know where to start. The AdvisorFind Directory from myStockOptions.com is for you.
Searching AdvisorFind is free and does not require registration at myStockOptions.com. |
| Need CE Credits? Learning Center At myStockOptions.com Offers Credits For CEPs, CFPs, And Other Professionals |
The myStockOptions.com Learning Center has courses of study and exams that offer:
30 continuing-education credits for Certified Equity Professionals (100% of the total requirement!)
15 continuing-education credits for Certified Financial Planners
15 continuing-education credits for CPWAs and CIMAs (37.5% of the total requirement)
CPE for Certified Public Accountants (CPAs) and CE for CFA Charterholders (see the Learning Center for information)
The course and exam on employee stock purchase plans covers all of the key information that you must know to be well informed about ESPPs. Each course of study features podcasts, videos, articles, and FAQs from myStockOptions.com. They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on the site for further reading and learning.
Other courses offered through the myStockOptions Learning Center focus on nonqualified stock options, restricted stock/RSUs, SEC law for stock compensation, and financial planning with equity awards. Built on a similar model, the the myNQDC.com Learning Center on nonqualified deferred compensation offers up to 6 continuing-education credits for Certified Financial Planners, 6 Professional Achievement in Continuing Education (PACE) credit hours for CLU® and ChFC® certifications, and up to 12 CPE hours for credentialed ASPPA members.
| Subscription And Licensing Information |
If you found this update from myStockOptions.com useful, please share it with your friends and colleagues, but do not copy or customize the text itself for your company's use without express permission.
TO SUBSCRIBE: Visit http://www.myStockOptions.com and register as a new user. Be sure to check the box for our email newsletters.
TO LICENSE OUR CONTENT OR ADVERTISE IN THE NEWSLETTER: Send email to sales@mystockoptions.com.