discussion response

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post 1

Incentive stock plans are a very useful tool for retirement planning especially if you work for a well performing company. They offer you a way to be compensated at a much lower tax rate because they are considered to be long term investments and therefore fall under the umbrella of capital gains, that is taxed at a much lower rate than standard income tax. This is probably the biggest advantage to them. You are also only taxed on the gains made after you exercise the option to purchase.

The biggest con that stood out in the research that I was doing is the way companies use ISOs and NQSOs to hide fraud and low revenue streams. However chances of this are low if you are working for a strong performing company.

Overall the pros of this form of compensation far outweigh the cons and serve as a great way to generate wealth in the long run if stocks continue to rise and split.

post 2

Incentive Stock Programs

Pros:

The biggest pro from these programs is the idea of the employer compensating the employee with equity through stock in their company. These programs can be attractive to potential talent the company may seek, as well as a good way at retaining their employees over time. Another way both the employer and employees can benefit from some of these programs is on their taxes through deductions and deferment. Due to all the benefits offered, it is in both the employer and employees best interest’s to be productive and strive for success in order to increase potential compensation and improve the company.

Cons:

The first con I saw was that private companies are unable to participate in these programs unless they are willing to jump through additional hoops such as applying consistent evaluation over time across the whole company. Another disadvantage to these plans is that the employee is limited to how much they are allowed to purchase due to potential liabilities from dilution. Additionally, with these plans the employee is invested in their employer and the employee holds the investment risk where they only benefit if there is appreciation in the underlying asset. Not everyone has faith in their current employer to grow over time. Which leads to my last con from the employee’s perspective which is that these programs (such as restricted stock) can tie them to a company for extended periods of time in order to recognize the compensation.

post 3

I cant believe that one day I would be saying this…but I get a magazine at home called “Pensions and Investments” and while I was perusing it earlier, I came across an article on the passage of the SECURE act which will now allow the creation of pooled employer plans, PEP’s offered by pooled plan providers, PPP’s. Essentially, employers can now outsource their retirement plans to third-party providers. I certainly found it interesting because it is a big shape up for traditional retirement as we have been studying it! With a PEP, it is better both for the employer and the employee perhaps as the employer does not need to worry about running a retirement plan, and employees have access to many more investments especially those that are normally available to those in larger plans.

I have attached two links that discuss these, including a digital article from the same publication I saw this. There does seem to be a lot of controversy around it however as some fear that for small businesses, it still does not solve the problem due to costs and implementation. Though if this ends up not being an issue, I really wonder if we will continue to see SEP or SIMPLE plans as much, when one could outsource to these PPP’s regardless of how small or large their company is. There are also many legal changes such as before when MEP’s (multiple employer plans), a precursor to PEP’s, had a “bad apple” meaning one of the companies did not comply with regulations, the entire plan could be disqualified. Now however, the plan simply has to remove the bad apples from the group and the other members will not be effected. ERISA compliance is still enforced.

It is great to come upon such an article and understand everything they are talking about!

https://www.pionline.com/defined-contribution/smart-brings-pooled-employer-plan-model-across-pond

https://futurebenefitsofamerica.com/pooled-employer-plans/

 

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