Key Features of BMO's ESPP

• Discount: 10%

• Contributions: 15% of salary

• Participation Period Length: 3 months

How it works:

• Payroll Contributions: Set aside up to 10% of each paycheck for the ESPP.

• Stock Purchase: At the end of 3 months, your accumulated funds buy BMO stock at a discounted price.

• Brokerage Account Deposit: Your shares go directly into your account, ready for you to sell for immediate gains or hold for potential growth.

What is an ESPP?

An Employee Stock Purchase Plan (ESPP) allows employees to buy company stock at a discounted price, usually through payroll deductions. This means you set a % or $ amount and each and every paycheck, a portion of your paycheck is set aside to purchase company stock at certain increments (most often 6 months but each company can do theirs differently).

Summary of BMO's ESPP

BMO's ESPP offers a 10% discount on stock purchases.

🔍 You can enroll four times a year prior to the start of each calendar quarter. Each of these enrollments is for a 3-month period:

Employees can contribute up to 15% of their salary, capped annually at $15,000 FMV.

Should You Participate In BMO's ESPP?

BMO's ESPP is a great benefit. You get to buy stock at a 10% discount - an instant win. If you hold the shares and the price goes up, you win again because you can sell your shares at a premium. You also have the opportunity to sell right away and this is where the ESPP shows its unique utility.

Here is what we've seen some folks do with their ESPP earnings:

• Build an emergency savings fund.

• Pay off high-interest debt.

• Use towards your retirement savings (funding IRA).

• Save for a down payment on a house.

• Create or contribute to a college savings account.

Before you get to participating, most folks recommend maxing out the match to your 401(K) first. After that, if cash is available, start looking at your ESPP.

What happens if the stock price goes down? Short answer: you’re protected during the participation period. ESPPs come with a built-in safeguard against such fluctuations during the participation period.

To explain: Over the period, the company sets aside money from your paycheck but doesn't buy stock immediately. Instead, they accumulate these contributions and make a lump sum purchase at the end of the period. The purchase price is then discounted by 15% (or more if a lookback is in play) from the stock price on that final day.

Let's consider two scenarios to illustrate this protection:

Stock Price Increases: Imagine you contribute $8,500 over six months, and the stock price skyrockets to $10,000 per share during that time. You would receive 1 share valued at $10,000 (your $8,500 contribution plus a 15% discount).

Stock Price Decreases: Conversely, if the stock price drops to $1 per share, you would get 10,000 shares, still equaling a value of $10,000 (your $8,500 contribution with the 15% discount applied).

As you can see, whether the stock price goes up or down, you end up with shares valued at around the total amount of your contributions plus the discount - insulated from stock price movement during the participation period.

Once you own the shares, you are now subject to stock price fluctuations.

How To Participate in BMO's ESPP?

Enrollment can be done within Computershare, with open enrollment prior to the start of each calendar quarter. Participation involves setting aside a portion of your salary, up to 10%, to buy discounted stock every three months.

Looking for help in figuring out how much you want to contribute? Reach out to the Benny team.

Selling Your ESPP Shares

Upon purchase, shares are deposited into your brokerage account, where you can choose to sell immediately or hold. Understanding the tax implications of selling is essential​​. If you sell right away, you’ll pay ordinary income tax on the gain from the discount.

If you wait 2 years from the beginning of your offering period, you’ll be taxed at long-term capital gains rate (often a lower rate).

If you sell right away, you lock in the gain. If you hold, you have more upside potential but there’s nothing saying the stock price can’t go down, and you end up with shares worth less than what you would have paid.

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