Forget health insurance or a 401(k) plan, more employees prefer their company's stock purchase plans.
Sixteen percent of workers said their employee stock purchase plan is their most important benefit, up from 10 percent in 2014, according to a new survey by Fidelity Investments, which administers employee stock purchase plans for 177 employers with 678,000 participants.
Employees may be feeling optimistic about their company's stock because of the second longest bull market in history. One in 5 workers expects his or her company stock to increase substantially over the next three years, the survey found. Fidelity polled more than 2,100 stock plan participants in March and April.
Investing in company stock is not without risk.
"Having worked with lots of Lucent, Avaya, HP, United, and other employees in the 2001 recession who lost their shirts by being over-invested in company stock, I'm leery of the employee stock purchase plans," said Kristin Sullivan, a certified financial planner in Denver.
But tell that to employees at Microsoft, Google, Facebook and others who became millionaires from company stock purchases.
More than half of public companies that provide equity compensation to workers offer an employee stock purchase plan, according to the National Association of Stock Plan Professionals.
Workers often can purchase company stock through their employee stock purchase plan at a discount. Qualified ESPPs offer discounts up to 15 percent below the current market price. Nonqualified plans, which are harder to find, can provide even greater discounts.
A qualified ESPP limits the amount of company stock that you are allowed to purchase to less than $25,000 per year.
"I view it as free money as long as people maintain their discipline in the plan," said Monica Sipes, a certified financial planner with Exencial Wealth Advisors in Frisco, Texas.
Keep in mind that you also may have an allocation of company stock in your 401(k) plan. Unlike ESPPs, buying employer shares in a 401(k) does not come with a discount.
Only 7 percent of 401(k) assets were invested in company stock as of 2014, the most recent data available, according to the Employee Benefits Research Institute. That figure has dropped by 63 percent since 1999 when company stock accounted for 19 percent of retirement plan assets.
Tougher rules and huge losses by workers who invested in employer shares at Enron, Lehman Brothers and RadioShack have pushed plan sponsors to limit company stock in their 401(k)s.
Sipes recommends that people hold no more than 15 percent of their net worth in company stock. Yet misplaced loyalty and familiarity bias can keep employees attached to their company shares.
"The emotional aspect can be a hindrance. You're not being disloyal to the company by selling your stock," Sipes said.
You do not owe any taxes when you purchase company stock through a qualified employee purchase plan.
Taxes get trickier when you sell shares. The discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income.
If you hold the stock for less than a year before you sell it, any gains are considered compensation and taxed at ordinary income tax rates.
Take this example: You are in the 25 percent federal income tax bracket and you bought shares of your company for $85 in an employee purchase plan, discounted by 15 percent from $100 per share. You sell immediately. Your gain of 15 percent would be taxed at a 25 percent rate, so you only pocket an 11.25 percent return.
If you hold the shares for more than one year, any profit will be taxed at capital-gains rates, which are usually lower than income-tax rates for most taxpayers.
"I advise selling as soon as possible to realize the gain from the discount," Sullivan said. "It's not the best tax-wise, but you never know what tomorrow holds for your company's stock price."
Participants in Fidelity's ESPPs appear to agree with Sullivan's advice.
Of the employees who sold the company stock they bought in a plan, 1 in 4 liquidated their shares almost immediately. Nearly two-thirds sold all their shares within 90 days, and about 90 percent sold all of their shares by the end of the first year.
Employees are less likely to hold all their shares as the value of payout increases, according to Fidelity. Half of workers held their stock when the payout value is less than $2,500 while only one-third kept their shares when their payouts were $50,000 to $100,000.
Younger workers are more likely to sell than older employees. Among workers in their 30s and 40s, roughly 40 percent held onto their shares in an employee purchase plan versus 48 percent of employees in their 50s and 55 percent of workers who were 60 and older, Fidelity found.
"Most people I know contribute, then forget about them like 401(k)s," said Hui-chin Chen, a certified financial planner with Pavlov Financial Planning in Arlington, Virginia. "An ESPP is not a good vehicle for such a management style."
Waiting for favorable tax treatment for your company shares may not be worth the risk that the stock could fall in value.
"The great thing about employee stock purchase plans is that they are more liquid than 401(k)s," said Emily Cervino, vice president at Fidelity Stock Plan Services. She said this flexibility can help people avoid tapping their retirement savings for unexpected expenses.
Only 7 percent of participants said they expect plan assets to be a primary source of retirement savings, according to the Fidelity survey. Forty-two percent of employees said that company stock will be more of a "cushion" for their savings.
"If you get a huge employee discount, no immediate sale restriction, and you are savvy with trading and disciplined with earning the discount only, then it may be something that works for you," Chen said. "I'd look at it as 'play money' instead of part of a retirement strategy."