BOSTON (TheStreet) -- Company stock plans are often misunderstood, even though they rank behind only 401(k) plans as a tool to build retirement savings for those who have them.
That is among the findings in a study by Fidelity Investments that looked at the behaviors of more than 1,900 stock plan participants at 130 companies nationwide. It found that the majority of these employees have sold shares obtained via their company's stock plan in the past, but many did so without knowing the tax implications of their actions.
Among the findings were that 52% bought or exercised stock grants in the past and 70% sold shares obtained via their company's stock plan. About one in four used the proceeds to pay down credit card debt or other bills, 13% reinvested the proceeds into their retirement plan and 11% used them for an emergency need.
The problem, Fidelity found, is that 35% of the respondents said they didn't know the tax implications of selling their stock. That knowledge gap fits with the fact that, in evaluating their decision, 10% said they didn't research investment information, 15% said they always make such moves on their own and 13% relied on the counsel of family and friends.
Asked to explain their company stock plan, 52% of respondents could only "generally" explain them; 11% said they couldn't "at all."
"The plans can be somewhat complicated," says Joan Bloom, senior vice president in Fidelity's Stock Plan Services business. "People don't always plan for how to use the benefit."
"One of the things that we were sort of surprised at is that in general people don't think of it as part of their compensation," Bloom adds. "They are sort of thinking of it more as a bonus. The other thing I think may be happening is that a lot of stock options were underwater, so it could be that people are thinking of these things a little differently prior to the market meltdown. Now we will have to see, over time, whether they start thinking about them as part of their core financial position and savings."
Building retirement savings is another reason that those with stock plans need to "think long term and about how to put a plan around them," Bloom says.
"One thing that I think goes unnoticed is that after 401(k)s these types of plan are the second-highest asset category for people who have them," she says. "Ninety-five percent of the Fortune 1,000 companies have some sort of equity compensation plan, so it is very widespread. People using these to fund more of their retirement is going to be critical."