10% employee discount on HCA stock

[Kayzmum]

I'm 62 years old and plan to retire at 65, which is 2-1/2 years from now. (my husband is already retired) I'm currently contributing 1% of after tax pay to purchase HCA (Health Corporation of Virginia) stock at a 10% employee discount. I'm thinking about increasing this to 5% for a while and then sell it when I get closer to retirement. The 10% alone would give me a profit, unless it nosedives, correct? I feel pretty confident this hospital won't go under. It's stock has been doing well, even through all this COVID mess. The rest of our accounts are or will be very conservative.

Any thoughts or opinions are appreciated. Thanks in advance.

 

[Starsky]

Buying stock at a discount is a nice perk as long as you have total freedom to sell the shares whenever you want. A 10% instant return is nothing to sneeze at these days.

 

[PaunchyPirate]

I agree with Starsky. This is a common and nice perk for employees. A 10% discount is great. Many employee stock purchase plans only get a 5% discount. Some get 15%.

The primary thing to understand is WHEN you can actually sell the stock and to understand that the stock could lose value in that time. It's a matter of your confidence in the stock. There is no insurance against the stock falling. But that is true with any stock ownership.

Some companies let you sell the stock immediately after buying it, thus ensuring the quick 10% gain. Other companies have rules in place to stop you from selling it for 6 months, or a year, or longer (I would guess). Just be sure to know what you're signing up for.

If the total value of your company stock purchases aren't a very significant portion of your retirement plans, then you may want to hold on to the stock for longer periods to maximize your investment. Many times, you'll see people expressing caution in owning more company stock than 5% of your overall portfolio value. But that number is rather arbitrary and you may feel otherwise. Again, no firm rules. Just cautions.

Also, you should be aware of what the tax implications are when you sell the stock. I've lost track of what those implications are, but you can research them.

All things considered, employee stock purchase plans can be a very nice investment return.

 

[Out-to-Lunch]

I am just curious and ignorant: How does that work exactly? Where does HCA get the stock to sell to you? Do they buy it on the open market and sell it to you at a loss? Do they issue new shares? Do they somehow hold some of their own stock, and then sell it off to employees? (As I say, I do not know how these things work!)

https://en.wikipedia.org/wiki/HCA_Healthcare

In May 2010, HCA announced that the corporation would once again go public with an expected $4.6-billion IPO as HCA Holdings, Inc. In March 2011, HCA sold 126.2 million shares for $30 each, raising about $3.79 billion, at that time, the largest private-equity backed IPO in U.S. history.[16] In May 2017, the corporation was renamed HCA Healthcare.[17]

 

[LarryMelman]

I am just curious and ignorant: How does that work exactly? Where does HCA get the stock to sell to you? Do they buy it on the open market and sell it to you at a loss? Do they issue new shares? Do they somehow hold some of their own stock, and then sell it off to employees? (As I say, I do not know how these things work!)

The stock comes from the corporate treasury, the same magic place that holds the stock that they use to pay executives.

But that's not really the important question. The OP really needs to understand the tax implications of his ESPP plan. At sale time, there will be some ordinary income realized, as well as some capital gain/loss. How much of each depends on the timing of the sale, and the rules of the plan. The ordinary income happens even if you left the company decades ago.

 

[OldShooter]

The risk with plans like this is that employees end up with "an imprudent concentration of assets" in the employer's stock. When DW was in the trust business she often had situations where dad funded mom's trust exclusively with stock in dad's employer, accumulated over the years. Tax implications tended to make diversifying the trust more difficult too.

It doesn't sound like the OP will reach an overconcentration level (often deemed to be 10-15%) but that is a thing to be aware of.

 

[brett]

We sold our EEP shares each year to pay down our mortgage. 15 percent discount but normally a 25 percent gain.

Used stock options as the retirement vehicle and fortunately exercised/bailed just before the stock price went down the toilet.

Never forget the Enron fiasco.


In my experience some employees drink their corporate kool-aid and get greedy. They end up with very unhealthy equity allocations that they would never otherwise consider if they buying stock in the market. Employer stock holding need to be managed in the same way as other assets....without emotion and in the clear light of day so to speak.