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Making the Most of Your HCA ESPP

All HCA employees have access to an Employee Stock Purchase Plan (ESPP). The ESPP offers employees the opportunity to have money withdrawn from their regular paychecks (after taxes) to be used to purchase HCA stock. Employees may designate up to 15% of their check to be designated for stock purchase up to an annual IRS-mandated maximum of $25,000 per calendar year. HCA offers this stock at a 10% discount to their employees—meaning employees only pay 90% of the closing price on the last day of the offering period. Enrollment in the ESPP is offered quarterly.

The ESPP is an intriguing benefit that offers employees the opportunity to own a piece of the company and build wealth above and beyond their retirement plan in a way that is more flexible than retirement savings. Specifically, these stocks may be sold as soon as they are in the employee’s account. The primary benefit of the HCA ESPP is the 10% discount employees receive on the stock price.


However, there are some considerations employees must think through as they decide whether or not to utilize the HCA ESPP.


The first consideration with the ESPP is the same question that must be asked about all payroll deductions: Can the employee afford to make contributions? For many employees, the answer is a resounding yes, but they often need to make spending adjustments in order to fund things like the ESPP. As elections can be changed on a regular basis, it often makes sense to start small and increase the ESPP contribution over time.

If an employee can afford to contribute to the plan, they must next to consider the following:


Concentration is the amount of exposure an investor has to a particular position or sector. HCA employees already have human capital invested in the company through their employment. Stock purchases further that investment and can result in overconcentration. Some employees want to hold a significant amount of their employer’s stock because they believe in the company and seek to demonstrate that through stock ownership. Beyond that, they believe the company is going to grow and the stock will become more valuable over time. The issue is that concentration is risky. The term “asset concentration risk” refers to an investor who relies too heavily on a small number of positions.

It is certainly true that a concentrated position can lead to incredible returns when the concentrated position goes up in value. Unfortunately, the opposite is also true—when a concentrated position goes down, a disproportionate part of the investor’s portfolio declines along with it. Putting all of one’s eggs in a single basket can lead to disastrous results.


The tax treatment of ESPP plans can be rather complicated. The HCA plan is funded with after-tax dollars, so the money used to purchase the stock is considered taxable income. After the purchase is made, there are two types of dispositions:

  • A qualifying disposition results from the sale of the stock after it has been held at least 1 year from the purchase date and 2 years from the offering date. In a qualifying disposition, income tax is due on the discount (10% for the HCA plan) and capital gains are due on the growth of the stock. Capital gains rates are typically lower than the employee’s top marginal tax rate.
  • If the sale happens before the above time periods are satisfied, the sale is considered a disqualifying disposition. In a disqualifying disposition, the growth that has occurred since the purchase date is taxed as ordinary income (as the principal has already been taxed as ordinary income).

For those planning to hold HCA stock, a qualifying disposition is clearly preferable. The complicating factor is the holding period required to achieve a qualifying disposition. During this time, many employees find themselves overconcentrated in HCA stock. Should the stock price decline significantly, the employee could be in a bad position.

A Maximizing Strategy

The greatest value to the ESPP is the 10% discount in stock price. Given that, it typically makes the most sense to liquidate the stock as close to the grant date as possible. Once liquidated, the proceeds may be funneled into other investments in line with the employee’s overall portfolio. This eliminates the risk of growth (and growth’s accompanying taxes) and locks in the discount. This may seem counterintuitive, but it mitigates asset concentration risk while also taking advantage of the primary benefit of the plan.

If you are interested in maximizing your ESPP, but are not sure where to start, we would love to be of help. Contact us today!