Fidelity® Survey Finds Many Stock Plan Participants Sold Stock Grants in the Past to Pay Down Credit Card Debt and Other Bills, with Little Understanding of the Tax Implications

Education Is Needed On How Stock Plans Can Contribute to Financial Success

BOSTON--()--Fidelity Investments®, administrative services provider to more than 1.5 million U.S. stock plan participants, today announced the results of a new study1 of workers with employee stock option, stock purchase and restricted stock plans. The study found that the majority of these employees have sold shares obtained via their company’s stock plan in the past, but many did so without knowing the tax implications of their actions.

The Fidelity Stock Plan Services study – which looked at the behaviors of more than 1,900 stock plan participants at 130 companies nationwide – reveals key insights about the financial tendencies of this group. The majority (52 percent) purchased or exercised stock grants in the past and 70 percent sold shares obtained via their company’s stock plan. About one in four (26 percent) used the proceeds from a stock sale to pay down credit card debt or other bills, 13 percent reinvested the proceeds into their retirement plan and 11 percent used them for an emergency need.

But many participants surveyed (35 percent) said they don’t know the tax implications of selling their stock. When looking for support in making these decisions, 10 percent said they don’t research investment information and another 15 percent said they make all of their decisions on their own. Only 18 percent said investment advisors were the first place they go for investment information. One-fifth (20 percent) said they go to brokerage services websites and another 13 percent turn to friends and family (including their spouse).

“Our research indicates that, although stock plan participants are in many ways financially savvy and save aggressively, there remains a clear need for better education on how stock plan assets can contribute to long-term financial success,” said Joan Bloom, senior vice president in Fidelity’s Stock Plan Services business.

Resources to Help Understand and Maximize Stock Plans

Fidelity offers a range of resources to help individuals understand their stock plans and decide how these assets best fit into their overall investment portfolios. The resources are available at no cost and include:

  • Fidelity Stock Plan Investment Analysis: Dedicated stock plan phone representatives are available to analyze an individual’s stock plan grants, assign a value to their options and recommend trading strategies
  • Customized webinars: Employees who have a stock plan administratively serviced by Fidelity can go to their NetBenefits® website for details on how their stock plan works
  • Educational articles on Fidelity.com: The articles explore topics such as: how to cash in on your employee stock plan. They are published in Fidelity Viewpoints®, a weekly consumer newsletter available at Fidelity.com
  • Online guidance and planning tools: Using Portfolio Review at Fidelity.com, individuals can receive assistance in creating an appropriate investment strategy
  • Seminars: Educational seminars are available at Fidelity’s 158 investor centers nationwide and on-site at various employers’ work sites

Most Workers Can Only Generally Explain Their Stock Plan

While the study found that company stock plans are the No. 2 savings vehicle of choice for many participants, most (52 percent) could only “generally” explain it and more than one in ten (11 percent) said that they could not explain their employee stock plan “at all.” The average investment allocation for participants who save at least 1 percent of their income is as follows:

401(k)

      53.1 percent
Stock Plans       16.9 percent
Personal Trading Accounts       5.7 percent
IRA       5.5 percent
Mutual Funds       4.7 percent
Money Market Accounts       3.4 percent
Bonds       1.4 percent
CDs       1.4 percent
Other Vehicles       7.8 percent
     

To help workers understand and maximize the benefits of a stock plan, Fidelity published an educational Viewpoints article earlier this year on Fidelity.com that outlines common mistakes to avoid. Below are some highlights:

1. Don’t allow stock options to expire – A stock option grant allows an employee an opportunity to buy a predetermined number of shares of their company’s stock at a pre-established price. Normally, there is a vesting period ranging from one to four years, and a worker would have up to 10 years to exercise options to buy the stock. But stock option grants are a use-it-or-lose it proposition. A worker must exercise his or her options before the end of the expiration period.

2. Understand the tax consequences of stock option grants – Workers should consult with a tax advisor before exercising any stock options. In some cases, when they sell shares of stock, they will be required to pay capital gains taxes.

3. Remember to exercise any existing stock grants after leaving an employer -- Most companies require that employees exercise any existing stock option grants within 30 to 90 days of leaving their job. Do not confuse the terms of a severance package, which may last six months or more, with the expiration date on stock option grants.

4. Be careful not to concentrate too much of your total investments in a single company stock – A diversified portfolio generally exposes an employee potentially to less risk. Also, an employee’s financial well-being is already closely tied to the fortunes of his or her employer in the form of a paycheck, health benefits and retirement savings. Should a company experience financial challenges, an employee could end up without a job or health insurance and a depleted nest egg.

5. Take advantage of a company’s employee stock purchase plan – Employee Stock Purchase Plans allow workers to purchase their employer’s stock, usually at a discount from the stock’s current fair market value. These discounts typically range from 5 percent to 15 percent. Many plans also offer a “look-back option” which allows them to buy the stock based on the price on the first or last day of the offering period, whichever is lower.

Fidelity is a leading provider of stock plan administration services in the United States. It services 230 employers nationwide, representing $125 billion in grant value.2

About Fidelity Investments

Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.7 trillion, including managed assets of more than $1.6 trillion, as of May 31, 2011. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

Fidelity does not provide legal or tax advice and the information provided is general in nature and should not be considered legal or tax advice. Consult with an attorney or tax professional regarding your specific legal or tax situation.

Guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI

586702.1.0

©2011 FMR LLC. All rights reserved.

1 Survey conducted online Jan. 26 to Feb. 14, 2011 by CMI of Atlanta and included 1,930 participants from all three major employer-provided stock plan categories: restricted stock, stock options and employee stock purchase plans

2 Fidelity data

Contacts

Fidelity Investments
Corporate Communications, 617-563-5800

Contacts

Fidelity Investments
Corporate Communications, 617-563-5800