SkyWest Employee Stock Purchase Program and 401K

[crj567]

O.K.-

I see what you are doing, now Andy... One of us has a serious mis-understanding of the system, and I am not sure who it is. Maybe I am wrong.

The way I read the ESPP program stuff, it looks like the 5% discount only takes place once-at the end of each six-month period.

Your calculations show a 5% discount on each purchase, throughout the period. From what I understand, the program looks only at the closing price on the last day of the period, and knocks 5% off-that is all.

If this were progressive, and each time a purchase was made, it was made at a 5% discount, you would be correct, but I don't get that from the stuff I have read. Looks like it only takes place once, but sits in an account until that time.

-The ESPP does specifically reference that the price of the stock is taken into account only once, and that the price is a snapshot on the last day of the period.

 

[CFIT]

I just got my info packet for the Deffered Compensation Program, has anybody taken a look at it yet, is it any good?

 

[Gnarloooo]

That's about to go to 35% tax if our new commie-who-be-in-charge has anything to do with it.

idiot

 

[crj567]

idiot

I agree-only a true Damn Fool Idiot would raise taxes in this economy....


Unfortunately, that seems to be the corner we just painted ourselves into.

-Welcome to the "new progressive era."

 

[USCtrojan]

I agree-only a true Damn Fool Idiot would raise taxes in this economy....


Unfortunately, that seems to be the corner we just painted ourselves into.

-Welcome to the "new progressive era."

Short term capital gains (less than a year) is already taxed right now at 35%. If you hold longer than 1 year then it's 15%. Maybe this is what you were referring to? Obama wants to take it to 37%.

Trojan

 

[PBRstreetgang]

Fair enough. What is your plan to do with $100 every two weeks if you don't do this?

Beer and teenage hookers! You?
PBR

 

[PBRstreetgang]

Fair enough. What is your plan to do with $100 every two weeks if you don't do this?

Beer and teenage hookers! in Thailand. You?
PBR

 

[Andy Neill]

O.K.-

I see what you are doing, now Andy... One of us has a serious mis-understanding of the system, and I am not sure who it is. Maybe I am wrong.

The way I read the ESPP program stuff, it looks like the 5% discount only takes place once-at the end of each six-month period.

Your calculations show a 5% discount on each purchase, throughout the period. From what I understand, the program looks only at the closing price on the last day of the period, and knocks 5% off-that is all.

If this were progressive, and each time a purchase was made, it was made at a 5% discount, you would be correct, but I don't get that from the stuff I have read. Looks like it only takes place once, but sits in an account until that time.

-The ESPP does specifically reference that the price of the stock is taken into account only once, and that the price is a snapshot on the last day of the period.

No, you still don't get it. I am not saying there is a 5% knock off on each purchase throughout the period. My calculation showed what a savings account would have to do in order to accrue $68.42 in interest in six months - that's all.

Let's see what you can agree on. I'll list some points and you can say I agree with 1, 3, & 4 for instance.

1. If you put in $100 per pay period, the total deposits would be $1300 after 13 pay period (6 months).

2. In order to accrue $68.42 in interest in a savings account, that savings account would have to be paying 18.983% interest compounded bi-weekly (slightly less if compounded daily).

3. The average amount in the account during the six month period is $650.

4. $68.42 is 10.53% of $650.

5. 10.53% is the return on the average amount in the account in 6 months.

6. A 10.53% return achieved in 6 months is the equivalent of roughly 21.06% on an annual basis.

Are you maintaining that participating in this program has an annual rate of return of 5%?

 

[SKYWRJGUY]

I flipped through the DCP stuff...I couldn't figure out if I can put XX% into the 401k and XX% into the DCP. For instance, should be able to put 10,500 or so into 401k if past two years are any indication, so would like to put the other 5k into DCP. However, some things I didn't like: 1) pay FICA on contributions; 2) contributions count as assets to company and they can use them to pay creditors [if push comes to show]; 3) mutual funds seemed to sorta suck; 4) only change once per year.

Wonder if I can defer enough into the DCP to take me below the HCE threshold...could fully fund 401k plus something into DCP. Need to ask my brother, methinks...

 

[JustaNumber]

Andy, I believe your math is correct, but the biggest problem with the program is that they hold your shares for about three days, during which their value may very likely lose 5% or more. At least with 15% it was more difficult to drop that much, especially if you got to use the beginning of the 6 month period for the purchase price.

 

[Andy Neill]

Andy, I believe your math is correct, but the biggest problem with the program is that they hold your shares for about three days, during which their value may very likely lose 5% or more. At least with 15% it was more difficult to drop that much, especially if you got to use the beginning of the 6 month period for the purchase price.

That's a reasonable concern. It would be interesting to see how long it has taken to recover to at least the purchase price if it moved down. As with any day on the market, sometimes it goes up, sometimes down, and sometimes sideways. I'm betting that even at 5%, the average would be a strong winner.

But I've got mine. Not a factor anymore. I just wanted to give some food for thought for those weighing the decision.

 

[crj567]

Andy-

I do see what you are getting at, but it is not a fair comparison......

In a savings account, you build money incrementally as well, and the interest builds incrementally. In this type of account, you are dealing with a lump sum which is used for the purchase at the end-all at one moment. The $650 average balance is completely irrelevant and should be ignored-it simply clouds the waters. -Although that is what your calculation is based on.

The fact is that your money accrues up until the point it is used... At that point you get a 5% discount-and as was mentioned earlier, the stock could drop and you could lose all your "interest." Too much risk for my 5%.

Essentially we are talking "apples/oranges" here.... We are both correct, but we have very different
perspectives. I just think it is very misleading to put it in those terms.

APR vs APY is the way people get jacked into never being able to pay off credit cards. Technically-I see what you are saying now, but it is very misleading to those who don't understand that the 21.06% APY means a very small actual return in real dollars.

 

[WalterSobchak]

Beer and teenage hookers! You?
PBR

Sounds like a pretty excellent plan to me.

 

[PBRstreetgang]

Sounds like a pretty excellent plan to me.

I thought so, and continue to!

 

[Nevets]

For instance, should be able to put 10,500 or so into 401k if past two years are any indication, so would like to put the other 5k into DCP.

I must be missing something because I was able to contribute $15,500 to my 401k this year.

 

[JoeMerchant]

I must be missing something because I was able to contribute $15,500 to my 401k this year.

The IRS limits "highly compensated employees" from maxing out their 401k's....The value depends on the other employees at your company and how much they contribute to their 401k's....

Yet another example of how liberal "spread the wealth" policies negatively affect regular people...Social engineering at it's finest...

 

[Nevets]

The IRS limits "highly compensated employees" from maxing out their 401k's....The value depends on the other employees at your company and how much they contribute to their 401k's....

So I guess that my fellow coworkers make a lot and they contribute a lot to their 401ks? I'm not sure that is the case.

 

[JoeMerchant]

So I guess that my fellow coworkers make a lot and they contribute a lot to their 401ks? I'm not sure that is the case.

Are you telling me you have never heard of the "highly compensated" issue regarding 401k's...aren't you an ALPA rep...?

The value depends on the individual situation at your carrier....but here at ASA we would hit it when we got to about 100K a year....Have you made that much at XJT yet?

 

[JoeMerchant]

From Wikipedia:
http://en.wikipedia.org/wiki/401(k)

Highly Compensated Employees (HCE)
To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's "highly compensated" employees, based on the average deferral by the company's non-highly compensated employees. If the rank and file saves more for retirement, then the executives are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of "highly compensated employees" (HCEs) and compares them to non-highly compensated employees (NHCEs). An HCE in 2008 is defined as an employee with compensation of greater than $100,000 in 2007 or an employee that owned more than 5% of the business at any time during the year or the preceding year.[5] As an alternative to the $100,000 limit for determining HCEs, employers can elect to define the top-paid group of employees as the top 20% of employees ranked by compensation.[6] That is for plans whose first day of the plan year is in calendar year 2007, we look to each employee's prior year gross compensation (also known as 'Medicare wages') and those who earned more than $100,000 are HCEs. Most testing done now in 2008 will be for the 2007 plan year when we compare employees' 2006 plan year gross compensation to the $95,000 threshold for 2006 to determine who is HCE and who is a NHCE.
The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2% greater (or 150% of, whichever is less) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level. The return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15th of the year following the failed test. A QNEC must be an immediately vested contribution.
The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to "shift" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC).
There are a number of "safe harbor" provisions that can allow a company to be exempted from the ADP test. This includes making a "safe harbor" employer contribution to employees' accounts. Safe harbor contributions can take the form of a match (generally totalling 4% of pay) or a non-elective profit sharing (totalling 3% of pay). Safe harbor 401(k) contributions must be 100% vested at all times with immediate eligibility for employees. There are other administrative requirements within the safe harbor, such as requiring the employer to notify all eligible employees of the opportunity to participate in the plan, and restricting the employer from suspending participants for any reason other than due to a hardship withdrawal.

 

[Nevets]

Are you telling me you have never heard of the "highly compensated" issue regarding 401k's...aren't you an ALPA rep...?

The value depends on the individual situation at your carrier....but here at ASA we would hit it when we got to about 100K a year....Have you made that much at XJT yet?

Yes, I've heard of it. But its never been an issue for me. And no, I'm no longer a rep. I've never heard of this being an issue for anyone at XJT and I'm sure there are some that make over 100k a year. Are you saying that SKYWRJGUY and others on this thread have made 100k a year and thus have this as an issue?