While employer stock options, stock purchase plans and equity compensation have not traditionally been thought of as retirement savings tools, benefits executives and attorneys say companies can help their workers think of these options for long-term goals, including retirement.
“I don’t know of many employees, or employers, who view those vehicles as necessarily meant for retirement savings, because they are generally tied to a set vesting period—unless it is a publicly traded company,” says David Joffe, chairman of the employee benefits and executive compensation practice group at Bradley. “There are usually limits to how long an employee can hold those types of stock options, and it may not be possible for them to own it through the time when they retire. They may leave the company or face an event that causes them to sell the stock.”
However, Joffe notes that employee stock ownership plans (ESOPs) are used to save for retirement and are becoming more and more popular, particularly if the company wants to help its employees have greater retirement savings. “A lot of the companies I work with not only have a 401(k) but profit sharing and ESOPs, which provide substantial additional retirement savings,” he says.
Sheila Frierson, president, plan managers, North America, at global employee share plan provider Computershare, agrees that “historically, equity has never really been looked at from a retirement-related perspective. However, as more plan sponsors become more concerned about the financial health and well-being of their employees, they might begin to view how such a compensation plan could be used for their employees’ future goals. For now, however, a survey we did jointly with WorldatWork found that only 34% of companies said they might make their restricted stock program retirement related.”
Jon Barber, vice president of compensation and policy research at Ayco, says his company makes sure advisers discuss stock options with clients when it’s applicable to their personal retirement savings strategy.
Barber says the firm seeks to help executives understand that value “comes down to goal setting.”
“We can help participants do cash flow analysis on when the best time is to exercise their stock,” he says. “When it comes to retirement, it might be wise to reign the executive in and help them see the wisdom of not holding the stock up until their retirement.”Barber says it is important for benefits firms and advisers to communicate the terms of their stock options to executives, especially when it comes to termination events, which might accelerate the vesting of those holdings.
Barber says companies that want to help their employees view their stock options through the prism of retirement can do so by equipping them with tools that can perform retirement cash flow and risk analyses and aggregate all their stock holdings so they can see when the various units are vested and when they can exercise them. “That will enable them to inventory what they have and fully understand when they can monetize those units for their retirement,” he says.
Barber also says companies are giving stock options and restricted stock units to more of their employees these days, not just highly paid executives.
« A Review of QDIA Regulations