At Cordant we have the opportunity to work with many current or former Intel employees. With this opportunity comes the responsibility of ensuring that their financial plans, planning strategies and retirement assets are up to speed with the ever-changing employee and retirement benefits programs. This year, being no different, Intel has communicated changes that impact both current employees and qualified retirees alike. Specifically, the following has been updated:
- Employee Stock Purchase Plan (2019)
- Intel’s Charitable Matching (2019)
- Roth 401(k) and after-tax savings (2020)
- Intel Minimum Pension and SERMA (2020)
This blog will only focus changes to Intel’s ESPP and is intended to provide a general summary, not specific advice. Future postings will cover the other changes referenced above.
Employee Stock Purchase Plan (ESPP)
- Intel has doubled the contribution limit from 5% to 10% starting in 2019
- The window to make this election closes on January 31st
Why does this matter? Because Intel is providing “free” money, that’s why! Remember, an ESPP allows employees to purchase shares of their own company at a discount. Typically, employees accumulate 6 months of deferred salary that can be used to purchase company stock at 85% of its fair market value. Once the stock is purchased, it is up to the employee to do something with it. There are several factors that impact this decision including tax treatment, cash flow, and concentration risk.
The recent increase to 10% salary is a nice bonus and a quick back-of-the-napkin example might help illustrate this. Assume an employee making $100,000 a year elects to max out their ESPP deferral at 10% and elects to “Quicksale” the shares (i.e. sell shares at vesting), they’ll take home an extra $1,500 just for clicking a few buttons:
- $100k (salary) x 10% (salary deferral amount) = $10,000 ($ to purchase stock)
- $10,000 x .15% (discount rate) = $1,500
Playing the Long Game
In isolation, taking advantage of your ESPP won’t move you into this Forbes list any time soon. That said, like most things related to retirement planning, taking advantage of an ESPP is something that’s in our control and over time can make a difference. Consider that over 20 years, $1,500 of additional savings per year compounding at 8% per year equals close to $70,000 of additional wealth. Don’t leave this money on the table. Be intentional with your wealth and focus on what matters.
Do you need help optimizing Intel’s compensation package? If so, please get in touch.