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Fidelity: Participants in Both 401(k)s, Stock Plans Save More for Retirement

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Employees who participate in both their company’s 401(k) and their company’s employee stock purchase plan tend to contribute an average of 32% more to their 401(k) than those who participate only in the 401(k), according to research released Tuesday by Fidelity Investments.

Related: Employees With Company Stock Plans Welcome More Financial Advice

In addition, 89% of employees who take part in their company’s ESPP also participate in their 401(k).

The research also showed that employees who participate in both plans are likelier to take advantage of financial guidance that their employer makes available, which can contribute to improved overall financial wellness.

The analysis was based on 250,000 employees at 100 Fidelity corporate clients who had access to both a 401(k) and an ESPP as of Dec. 31.

Fidelity’s study found that employees in both plans contributed an average of 12.5% of their salary in their 401(k) and 6.3% in their ESPP, while employees who participate in just their 401(k) contribute an average of 8.8% of their salary.

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, employees with annual salaries between $25,000 and $50,000 who participate in both plans contribute an average of 8.3% to their 401(k) and 4.7% to their ESPP, compared with a 7.4% contribution rate for employees who participate only in their 401(k).

When analysts looked at participation rates for employees in both their ESPP and 401(k) by income, they found 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.

Importance of Plan Design

Fidelity said its research showed that plan design can influence the number of employees who choose to participate in their company’s ESPP.

While stock purchase plans often offer workers the chance to buy 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.

A look back compares the price at the beginning of the offering period to the price at the end of the purchase period — e.g., Jan. 1 and June 30 — and applies the discount to the lower price.

Fidelity’s analysis found that ESPPs that offer 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.

“This analysis demonstrates that while it’s important for employers to consider the workplace benefits they make available to their employees, it’s also important to recognize how the benefits are structured and the positive impact of offering employees multiple benefits in an integrated environment,” Mark Haggerty, head of stock plan services at Fidelity Investments, said in a statement.

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