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Stock options - member advice  (Dec 11, 2020) Question? Email: info@hpalumni.org

Received a "Potential Private Retirement Benefit" letter from Social Security? How to decode the letter and who to contact, if necessary: Potential Benefit letter

How employee stock options work

From the advertiser-supported "Investopedia" financial education site:

Restricted Stock Grants "...give employees the right to acquire or receive shares once certain criteria are attained, like working for a defined number of years or meeting performance targets."

Stock Appreciation Rights "...provide the right to the increase in the value of a designated number of shares; such increase in value is payable in cash or company stock."

"The vesting period is the length of time that an employee must wait in order to be able to exercise their ESOs. Why does the employee need to wait? Because it gives the employee an incentive to perform well and stay with the company. Vesting follows a pre-determined schedule that is set up by the company at the time of the option grant."

More at https://www.investopedia.com/terms/e/eso.asp  and https://www.investopedia.com/terms/n/nso.asp

Merrill Lynch education page on equity awards, such as company stock:

https://www.benefits.ml.com/education/equity-awards


HP and HPE stock option issues

Your stock option situation is settled when you leave the company.

From the HPAA's unofficial ASAP Checklist. Member advice on what to do before losing access to company systems -- and in the following few weeks. Supplements the official checklists.

7. Stock options or other incentives.
- You need to determine immediately if you have unexercised options that will expire upon termination. Read that section in your WFR or Retirement document, print out your stock option history, read the legal document you received with each option grant, and refer to the stock-related sections on the official "Leaving HP" or "Leaving HPE" site (item 3 above.) On that site, there is a link to a Merrill Lynch brochure on "Equity Awards," disclosing the transaction cost to sell your shares. Since the company eventually stops paying ML to administer your account, the brochure also discloses annual "inactive account" and "low balance" fees.
- You need to get your options report twice -- before your termination date and again after your termination date. The report you get before you leave doesn't tell you what will happen to your options after you leave -- for example, the expiration date may be pulled forward.
- The key: Options are not compensation that you have earned -- they are designed to retain you as an employee. Once you leave, unexercised options are only relevant to the company as a potential expense.
- To receive “retirement treatment” on equity awards, you must be age 55 with 15 years of qualifying service or age 55 with at least 70 age-plus-service "points."
- If transitioned to DXC or Micro Focus, stock and options issues: Stock


Tax aspects of employee stock options

[If you exercised stock options last year, you need both a 1099-B and a W-2. How to obtain your W-2. ]

Employee stock options allow the holder to purchase shares at the specified ("strike") price after a defined holding or vesting period.

The options that most HP and HPE employees receive are termed "non-qualified" -- and do not have a value that can be determined before they are exercised:

- You do not realize any income when the options are GRANTED. (Unlike stock acquired through employee stock purchase and service awards.)

- When the options are exercised, the difference between the market price and the exercise price (that is, the discount times the number of shares) is treated as wage income. HP withholds taxes (including Social Security and Medicare tax) and issues a W-2 -- even if you are no longer an employee. This is income realized at the time of the EXERCISE.

Intuit's a tax-prep app website has an explanation and some example tax scenarios:
https://a tax-prep app.intuit.com/tax-tools/tax-tips/Investments-and-Taxes/Non-Qualified-Stock-Options/INF12046.html
[Public website -- neither a tax-prep app product nor registration is required.]

When options are exercised, Merrill Lynch mails a tax summary, which can also be downloaded from the Merrill Lynch website:
http://www.mybenefits.ml.com

Note that the Merrill Lynch tax summary is only for reference. What HP has reported to the IRS is given on the W-2 form you received from HP.

(Here are HPAA's directions on how to get a missing HP W-2 -- including how to download immediately.)

[Marc Lee, Tom von Alten -- Apr 13, 2014]


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