BOSTON--(BUSINESS WIRE)--Fidelity Investments® today released research results1 showing that employees are less likely to take a loan from their 401(k) account if their company also offers an employee stock purchase plan (ESPP). In addition, employees with access to both an ESPP and a 401(k) tend to borrow a smaller amount from their 401(k), and had a lower outstanding loan amount. Employees often reduce or stop saving in their 401(k) after taking out a 401(k) loan, which can significantly hinder their ability to reach their retirement savings goals.
The research analyzed companies offering both an ESPP and a 401(k), and companies that only offer a 401(k). While the positive impact of ESPPs on 401(k) loans was evident in companies of all sizes, the difference was notable in small companies (less than 500 employees), where only 9% of workers took out new 401(k) loans when an ESPP was also available, compared to 14% for employers that only offered a 401(k). The outstanding loan rate at small companies was also significantly lower, with only 14% of ESPP/401(k) workers having an outstanding 401(k) loan balance, compared with 23% of employees at 401(k)-only companies.
Employees at large companies (more than 10,000 employees) with both an ESPP and 401(k) borrowed an average of $2,000 less than employees with only a 401(k), and had an average outstanding loan balance of $3,000 less than employees without access to an ESPP.
“While Fidelity encourages employees to think twice before taking a 401(k) loan, we understand that sometimes life events can create immediate financial needs,” said Kevin Barry, executive vice president, Stock Plan Services at Fidelity Investments. “Savings in an employee stock purchase plan can present a viable option for workers who need to draw on their savings for financial purposes. Company stock, which is often purchased at a discount and is kept in an account outside of an employee’s 401(k) account, can be cashed in without the risks and tax implications sometimes associated with tapping a 401(k) account and the money does not have to be repaid if an employee changes jobs.”
Employee Stock Purchase Plans Continue to Grow in Popularity
ESPPs are often offered to employees as a complementary workplace savings vehicle to their 401(k), and are increasingly important among workers evaluating a new job opportunity. A recent Fidelity survey2 reveals 86 percent of respondents under the age of 40 said they would want their new employer to offer a company stock plan if they changed jobs, and 40 percent of overall respondents consider a company stock plan as a “must have” benefit when making a decision to change employers.
“Employee stock purchase plans are a win/win for employers and employees – employers utilize them to reward workers and encourage a sense of ownership in the company, while employees get an additional savings vehicle to help them reach their financial goals,” added Barry.
About Fidelity Investments
Fidelity’s goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $4.9 trillion, including managed assets of $2.0 trillion as of September 30, 2014, we focus on meeting the unique needs of a diverse set of customers: helping 23 million people investing their own life savings, 20,000 businesses to manage their employee benefit programs, as well as providing 10,000 advisors and brokers with technology solutions to invest their own clients’ money. Privately held for nearly 70 years, Fidelity employs 41,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit www.fidelity.com.
Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917
Fidelity Investments Institutional Services Company, Inc.,
500 Salem Street, Smithfield, RI 02917
National Financial Services LLC, Member NYSE, SIPC,
200 Seaport Boulevard, Boston, MA 02110
705587.1.0
© 2014 FMR LLC. All rights reserved.
1 Analysis of 213 Fidelity clients, as of May 2014. Results based ESPP/401(k) clients (total: 119) representing 158 plans and 1.3 million active participants, as well as clients with only a 401(k) (total: 94) which represents 183 plans and 1 million active participants.
2 Survey of 2,116 stock plan participants, both US (total: 1,475) and international (total: 641), with 592 respondents under the age of 40. Survey data was collected between January 29, 2014 and March 10, 2014 by Market Probe.
