As we’re entering the open enrollment period for certain benefits at the company where I work, there has been some talk amongst my coworkers about my company’s stock purchase plan.
My coworkers are concerned that they can’t take advantage of the plan to the maximum because their cash flow is tight. That’s actually my concern as well, but I think I have enough in savings to cover any shortfalls in cash flow and replace the savings with proceeds from the sale of the stock at the first available moment.
Part of the problem is that the employees in my department are considered “designated employees,” which doesn’t mean we get to bat for the pitcher. It means that there are certain times of the year—only a few—that we are allowed to trade company stock. The “open trading windows” usually don’t fall at the end of the quarters, the time when the company stock will be available to sell. My hope is that this doesn’t turn into a problem.
There was also some discussion about whether it’s better to hold onto the stock for a long time rather than sell right away. In my opinion, the stock in my 401(k) is meant to be held for a long time, but I’d rather sell the stocks from the SPP as soon as possible to limit risk due to being over-invested. Between the SPP, company stock in my 401(k), and my salary which is reliant on the health of my company, I feel that’s a little too much attachment to one company whose biggest period of growth is probably behind us all ready.
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11:09 am (reply)
I’m still undecided on this Flexo. We’ll instantly get a 15% return which is hard to pass up.
I keep my company stock holding in my 401k to 10% of the account balance. My overall exposure to company stock relative to my net worth is ~ 11% (this includes 401k stock + stock options + shares in a retail account ** I was lucky enough to have been here since 2001 to cash in on the options and the “stock awards”).
This shouldn’t hurt me from an “exposure to company stock” standpoint as long as I keep liquidating on a regular basis. I ‘ll just need to reduce my biweekly contributions to Emigrant Direct to “afford” this.
As a side note, I’m keeping my 401k deferral rate @ 16% and will contribute the max to the Roth IRA. One thing I won’t do is sacrifice my retirement plan for the SPP.
1:23 pm (reply)
Employees should beg, borrow, or steal to come up with the money to enable them to participate in these programs. ASSUMING you sell immediately at the end of the period, rather than holding the stock for 2 years to reap the tax benefits, the absolute worst you can do is 15% return in 6 months. The best you can do is much higher than that.
(Actually I’m lying; there’s usually a 1-2 day window between the stock is purchased and when it can be sold. It’s possible, but unlikely, that the stock will crater during that window).
If it means slowing down debt repayment to afford the program, it’s still worth it. The key is to NOT spend the money when you get it.
When I first started working, I used the proceeds from our ESPP to pay off my student loans. Every 6 months I’d pay off another loan.
I completely agree with you regarding not holding the stock. In my opinion, holding any company stock is a bad idea. We’re all already too dependent on our company’s fortunes. No need to increase that exposure through equity ownership.
6:54 am (reply)
I would continue to invest in the stock options as much as I could and leave some investment money left over in order to diversify.
8:58 am (reply)
Ha, I guess there are a bunch of us that read this blog and work here.
I’m torn on the decision as well. Although I have to admit, I’m a little leary on too much exposure. With the 401K contributions, the match, the options, the most recent grant, plus the original grant from 2001, that is quite a bit. (I’ve been here since 95)
The ont thing I like about my decision is that I’m not considered a designated person. You know, one good this about this program is that we don’t have to decide right now. According to the documentation we got, we can enroll at any time.
10:15 am (reply)
For what it’s worth everyone I work with are going to enroll next week. I’m not designated either.
F2O : Do you intend to liquidate every quarter ? I can see this becoming a tax filing mess.
10:17 am (reply)
Is there some benefit that you receive from having your company stock in your 401(k)? Is it a requirement to have a certain minimum? If so, I would go with the minimum. As for the SPP, I would dump most of it, and maybe limit any of it that you keep to 2-4% of my portfolio. If you look at the best mutual funds, they tend to not let any one stock have more than 4% of the allocation, so that is why I use that number. You aren’t going to get any benefit from holding on to it unless you are setup with an incentive stock purchase plan, which gets taxed only when you sell your stock, not on execution and sale (however, that is usually only available to executives, as it has some tax increases for the company). If you are on an incentive plan, then you could hold it for a year or more and only be taxed at the capital gains rate for the discount and gains.
10:30 am (reply)
Half of the company 401(k) match is in company stock. For me as a designated person, I have to hold onto it until there is an open trading window. I’ve been with the company 4 years and have had the full match the entire time, but I have not redistributed the company stock in the 401(k)... yet.
1:44 pm (reply)
JP, the tax thing is exactly why I’m on the fence right now. The instant 15% gain is very tempting, but to keep myself from being overweight in company stock I’ll have to sell pretty often.