Across income levels, employees who participate in both their company’s Employee Stock Purchase Plan (ESPP) and their company’s 401(k) plan often contribute more to their 401(k).
According to the research from Fidelity Investments, those who participated in both plans tended to contribute an average of 32% more to their 401(k) than employees who only participate in the 401(k).
Moreover, nearly 9 out of 10 (89%) employees who participate in their company’s ESPP also participate in their 401(k), and employees who participate in both plans are more likely to take advantage of financial guidance made available by their employer.
The findings are based on an analysis of 250,000 employees who have access to both a 401(k) and ESPP. Fidelity found that employees in both plans contribute an average of 12.5% and 6.3% of their salary in their 401(k) and ESPP, respectively. By contrast, employees that participate only in their 401(k) contribute an average of 8.8% of their salary.
What’s more, the higher contribution rate for employees in both plans is consistent across all income levels—not just among executives and highly paid employees. For example, the study found that employees with annual salaries between $25,000 and $50,000 who participate in both plans contribute an average of 8.3% and 4.7% to their 401(k) and ESPP, respectively. That compares with a 7.4% contribution rate for employees that only participate in their 401(k).
“Historically, there has been concern that employees who have access to a 401(k) and an ESPP are faced with an ‘either/or’ decision; however, this analysis demonstrates that when employees have access to both plans, in an integrated environment, participation in both plans can result in better retirement savings behavior and contribute to improved financial wellness,” notes Mark Haggerty, Fidelity Investments’ Head of Stock Plan Services.
When participation rates for employees in both their ESPP and 401(k) were analyzed by income, the analysis shows double-digit participation rates at every income level, with more than a third of employees at all salary levels above $75,000 per year participating in both plans.
The research also found that participation in both plans was consistent among male and female employees. After allowing for income disparity between men and women, Fidelity notes that the percentage of women who participate in both their ESPP and 401(k) is 36%, only one percent lower than the participation rate for men.
Look Back Allure
Fidelity’s research also found that plan design can have an impact on the number of employees that choose to participate in their company’s ESPP.
While ESPPs often offer workers the chance to purchase company stock at a discount—ranging from 5% to 15%—many ESPP plans with a 15% discount also offer a “look back” which can stretch the discount when the stock price is appreciating.
Fidelity’s analysis found that ESPPs offering a 15% discount with a look back have a participation rate of 44%, well above the participation rates for plans that offer lower discounts or no look back.
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