Another ESPP question

[iliketosavemoney]

I see a lot of ESPP plans give the employee a discount at the lowest price. Most people seem to say buy it and sell it right away.

Our company's ESPP is a little different. We don't get a discount but we get a 50% matching grant in the form of an RSU. The RSU vests 25% per year over four years.

Is this something I should consider?

[97guns]

i think it is, what better company to invest with than a company your working for

any discounts make them a no brainer

[JulieAlbright]

I'd vote to take advantage of the discounts to the highest extent available. If the company wants to give you "free money" then pretty much the only thing you need to ask is where to sign.

But as far as holding the stock for the long-term, I think you need to carefully consider the ramifications of having a chunk of your current income, plus whatever pensions etc, plus a large percentage of your investments in the form of this stock all tied to the health and performance of one single company.

How comfortable you are with that is going to depend on the company and your own tolerance for risk. My husband and I do hold company stock but we carefully examine how large that holding gets in regards to our other investment avenues and we sell when we get uncomfortable with the risk.

One really great example to consider, most of the Enron employees thought their company stock plans were an awesome deal…….all the way down to the bottom of the Ocean.

[iliketosavemoney]

Thanks for both your replies.
I do want to take advantage of the free money but was a unsure about the 4 year vesting period.
It seems I can't sell any purchased stock until the matched RSU has vested or else I lose the RSU.
I don't want to hold too much of my company stock so I'd sell as soon as I can.
So I think that means I can sell 1/4 of my purchased stock and 1/4 of RSUs every year?

[97guns]

keep and hold the matching grant and sell off the shares you purchase if your leery of holding, you should always be able to sell the shares you buy, usually in every case vesting time pertains to any matching contribution.

me, i bought and held and it payed off pretty large, made over 90K working only 4 years at home depot but it was during the dot com run up where i went through 3 splits in the 4 years.

[bigdaddybus]

I see a lot of ESPP plans give the employee a discount at the lowest price. Most people seem to say buy it and sell it right away.

Our company's ESPP is a little different. We don't get a discount but we get a 50% matching grant in the form of an RSU. The RSU vests 25% per year over four years.

Is this something I should consider?

My parents both maxed out their companies ESPP program for their entire 35 yr careers. Theirs was similar to what you are discribing as they had to hold onto their 50% match for a couple years before they could sell (CAT).

They retired multimillionaires, but results may vary....lol

I take every tax advantage, match, etc I can get.

[GrimJack]

i think it is, what better company to invest with than a company your working for

any discounts make them a no brainer

The only problem with investing with your own company is that if the company goes out of business - you lose your job and your investment.

[GrimJack]

My parents both maxed out their companies ESPP program for their entire 35 yr careers. Theirs was similar to what you are discribing as they had to hold onto their 50% match for a couple years before they could sell (CAT).

They retired multimillionaires, but results may vary....lol

I take every tax advantage, match, etc I can get.

I would point to Enron as the counter-example

[iliketosavemoney]

Thanks for all the input.

So it looks like the way it works is: If I buy shares, the matched RSUs will vest 25% per year until all are vested in the fourth year. But before the fourth year, if I sell any of the purchased shares or already partially vested RSUs, I'll lose the rest of the matched RSUs.

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This is an example given from the plan information:

Purchased Shares and Vested Shares need to be held for the duration of the holding period in order for Matched RSUs to fully vest. In the event any Purchased Shares or Vested Shares are sold prior to the end of the four-year period, then the remaining Matched RSUs will be forfeited completely.

To clarify this point, consider the following examples. An employee purchases 80 shares and receives 40 Matched RSUs (vesting: 10 / 10 / 10 / 10).

Example #1: Employee sells 80 Purchased Shares prior to any vesting. 40 Matched RSUs would be forfeited from the Matched RSUs vesting on the first anniversary and vesting adjusted accordingly (0 /0 / 0 / 0).

Example #2: An employee purchases 80 shares and receives 40 Matched RSUs (vesting 10 / 10 / 10 / 10). Employee sells shares between the first and second vesting periods. Employee retains 10 vested Matched RSUs from the first anniversary, and all remaining Matched RSUs are forfeited (10 / 0 / 0 / 0).
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Some good points are:
I work at a pharmaceutical company and I don't think they go bankrupt very often.
It's a 33.3% discount on the stock if I stick it out for 4 years. After the 4th year I can sell purchased and vested RSUs every quarter.

Some bad points are:
If the company goes bankrupt or the stock price take a serious dive, ouch!
If I get fired or laid off, I lose all matched RSUs that aren't already vested at that time.


It seems like this is a good deal and the only real risk is if the company pulls an Enron.
I do already contribute to my retirement accounts so I feel this won't destroy me financially if it doesn't work out. I think I'm going to try it for a quarter and see how comfortable I am at the end of the year.

[jIM_Ohio]

If you save only 6-10% of your income, this ESPP will look risky. If you can save 20-25% of your income, this will look like a great way to balance risk and reward.

Most people won't be able to retire saving 10% of their income. For example 6% to 401k, and 4% to ESPP. When a financial crisis hits, the ESPP will likely be first money you liquidate, and you may not like the results (selling at a loss, missing an opportunity 5 years later).

If you save 25% of your income (6% to 401k, 10% to IRA, 4% to cash and 5% to ESPP), you will have lots of financial success. The 25% savings rate shows you spend less than you earn. The 5% contribution to the ESPP is somewhere between high risk-high reward and aggressive thinking, you put almost as much into cash as you do to the ESPP. FYI- if the cash account ever had more than the ESPP then I'd suggest finding a new job.

[iliketosavemoney]

Hi Jim,

Thanks for your response. I just wanted to add some more info and get your thoughts on this.

I planned on putting 20% into the ESPP. Yikes! I know that's a lot but this is after putting the max into my Roth 401k and both my wife and my Roth IRA. This is will make our budget very tight but I think we can do it. If not, I can always cut back or stop next quarter.

I feel like I'll kick myself if I don't participate. When I joined my current company in late 2012, the stock prices were $50 and now it's at $128! Of course, if for some reason the stock prices drop later, I'll be kicking myself for putting all this money into it.