BOSTON--(BUSINESS WIRE)--While employees continue to invest in their company’s stock, more are choosing to invest through an Employee Stock Purchase Plan (ESPP) instead of buying company stock through their 401(k), according to recent analysis1 from Fidelity Investments®. The analysis suggests employees are taking a more balanced approach to how company stock is allocated within their savings strategy.
A growing number of U.S. workers are taking advantage of their ESPP to purchase company stock, with the percentage of employees participating in their ESPP increasing to 28 percent in 2016, up from 23 percent in 20142. Because stock purchased through an ESPP is held outside of an employee’s 401(k), shares are more accessible and can be used to help address a variety of financial needs. Employees say they use company stock acquired through their ESPP which can often be purchased from their employers at a discount – to help pay down debt, add to their retirement savings, finance real estate or home improvement projects, or simply set aside for a rainy day.3
“Making company stock available to employees is a great way for companies to motivate their workforce and give workers a sense of ownership in their company, as well as help attract and retain talented individuals,” said Mark Haggerty, head of Stock Plan Services for Fidelity Investments. “However, employees should remember that their company’s stock, just like any other stock, should be part of a balanced and diversified investment portfolio, especially if it’s part of their 401(k).”
At the same time, Fidelity research shows that both employers and employees are taking a more measured approach to company stock within their 401(k). Fidelity examined the evolution of company stock within 401(k) plans over the past 10 years, and identified changes in three areas: 1) how many employers offer company stock through their 401(k), 2) how many employees invest in company stock through their 401(k), and 3) the percentage of employees’ 401(k) savings held in company stock.
Fidelity’s analysis revealed:
- The percentage of employees with company stock in their 401(k) has dropped by almost half, from 41 percent in 2005 to 23 percent in 2016.
- More than one in four employers (28 percent) still offered company stock through their 401(k) in 2016, dropping from 39 percent in 2005.
- Nine percent of employee 401(k) assets were in company stock in 2016, down from 16 percent in 2005.
Employees optimistic about company stock, and view as an alternative to 401(k) loans
Employees are generally optimistic about the future performance of their company stock. Fidelity found that 83 percent of employees who participate in their company stock plan expect the value of their company’s stock to increase over the next few years4. More than half of employees surveyed (52 percent) said they expect the value of their company’s stock to increase at a modest rate, and more than one in five (21 percent) employees expect the value to increase substantially in the next 24 months.
Company stock can also help employees protect their retirement savings by reducing the likelihood they will borrow against their 401(k). Employees who participate in their company’s ESPP are three times more likely to sell company stock for emergency cash rather than take a loan from their 401(k), and over half (52 percent) added that it was “highly unlikely” they would tap their 401(k) if they needed cash.
“Both employers and employees still view company stock as important workplace benefit, and understand the important role it can play in an employee’s overall financial wellness,” added Haggarty.
To learn more about ESPPs and company stock, Fidelity has posted information on LinkedIn that outlines what to consider when deciding whether to participate in an ESPP, as well as a podcast on how ESPPs work and the role they can play in your financial well-being.
About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.4 trillion, including managed assets of $2.3 trillion as of August 31, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long- term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.
Diversification/asset allocation does not ensure a profit or guarantee against loss.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Past performance is no guarantee of future results.
Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917
Fidelity Investments Institutional Services Company, Inc.
500 Salem St., Smithfield, RI 02917
© 2017 FMR LLC. All rights reserved.
1 Analysis focused on Corporate DC plans administered by
Fidelity with over $100M in DC plan assets that offer company stock as
an investment option in the plan. All data points as of September 30 of
the year indicated.
2 Based on analysis of company stock plans administered by Fidelity, measuring participation rates at the end of 2014 to rates at the end of 2016.
3 Survey conducted for Fidelity by CMI of 2,114 stock plan participants, both US (total: 1,369) and international (total: 745). CMI sent invitations and up to two reminders between March 14 and April 13, 2016. Surveys were collected through April 22, 2016.
4 Survey conducted for Fidelity by CMI of 2,114 stock plan participants, both US (total: 1,369) and international (total: 745). CMI sent invitations and up to two reminders between March 14 and April 13, 2016. Surveys were collected through April 22, 2016.