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Enhancing ESPPs.

Byline: Rebecca Moore

Summary paragraph: Another way to help workers save for retirement

Employee stock purchase plans (ESPPs) can complement workplace savings plans and provide a way for employees to diversify their retirement investment efforts.

According to recent research from Fidelity, improving economic conditions and a strengthening job market are prompting many U.S. companies to enhance their employee stock purchase plans in an effort to improve their benefits packages. However, ESPP participation rates lag behind other employee benefits.

When employees do participate, a 2012 Fidelity Investments survey found, the majority (57%) of ESPP assets are earmarked by employees for alternate investments or retirement savings.

Most ESPPs offer employees the chance to purchase company stock at a discount-usually between 5% and 15%-meaning an employee is more likely to make money on the shares he purchases. Plus, if the stock price drops, employees can still take advantage of dollar-cost averaging. According to the Fidelity survey, many companies plan to increase their discount over the next few years, making the employee savings that much greater.

Employees can contribute automatically through payroll deductions. Once an employee enrolls and sets his contribution rate, funds are automatically withdrawn from his paycheck and applied to the purchase of company stock. Typically, employees can enroll online and then monitor and manage their account through their plan service provider's website. Many companies allow employees to contribute as little as 1% of their paycheck.

Although taxes still apply, workers can access assets within an ESPP without penalties and/or the repayment requirements incurred when they take a loan or withdrawal from their 401(k) account. Savings from an employee stock purchase plan can be applied to a variety of financial needs, such as a down payment for a home, a home improvement project, tuition payments or other life expenses.

An increasing number of workers have access to company stock. This is due to the growth of ESPPs as well as the increasing number of companies being publicly traded, Fidelity says. According to a recent study, 40% of companies that recently went through an initial public offering implemented an ESPP, and all of those companies offered their company's stock at a 15% discount.

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Date:Sep 1, 2013
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