By Chuck Epstein
Stock purchase plans
are enjoying a revival as plan sponsors seek to boost their benefit plan offerings, according to a survey by Fidelity Investments.
The survey found that improved economic conditions accompanied by an improved job market are encouraging many plan sponsors to revitalize their employee stock purchase plans and improve their benefits package in the process.
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The survey found that 51 percent of companies surveyed said they intend to modify their ESOPs within the next two to three years, with 31 percent of employers either introducing or increasing the employee discount on company stock (between 10 and 15 percent) or adding a “look back” provision to help employees buy shares in their company at a lower purchase price.
(“Look back” provisions often compare the share price at the beginning and end of the purchase period and use the lower price to calculate purchase price. This formula can differ for plans that have multiple purchase periods in the offering period.)
ESOPs fell out of favor in the past few years. According to the study, 71 percent of employers that made a change to their ESOPs said the changes were a result of the economic downturn. These changes included lowering or eliminating the employee discount on stock (14 percent), shortening the “look back” period (6 percent) or removing the look back provision altogether (5 percent).
“During the recent recession, some employers felt the need to reduce or eliminate the discount in their employee stock purchase program, just as many employers felt the need to reduce or eliminate their 401(k) match,” said Kevin Barry, executive vice president, Stock Plan Services at Fidelity Investments.
“But as the economy continues to improve, companies are reinstating their discount as they realize that an attractive employee stock purchase plan can be a significant asset in attracting and retaining the most talented employees, especially in competitive hiring markets like technology, professional services and transportation.”
A 2012 Fidelity survey found that 57 percent of company stock plans were being used for investment or retirement savings after participants sell them.
About 82 percent of employees said their plan “was an effective tool to help their employees reach their financial goals.”
The most common ways in which employees use the proceeds from their ESOPs was for retirement (69 percent), followed by college savings (42 percent), emergency savings (41 percent) and to reduce debt (33 percent).
Originally published on BenefitsPro.com