Employee Stock Purchase Plans Are Not Exempt Assets

A client asked me during a consultation whether his employee stock purchase plan was an exempt (“ESSP”)  asset.  The client’s ESSP was provided by his employer. The employer is a publically traded company. The ESSP plans provides employees the opportunity to purchase employer stock at a ten percent discount to current market value.  The employee pays tax on the benefit only when he sells the stock.

The rules for ESSP plans are expressed in Section 423 of the Internal Revenue Code.  The Code section provides the tax consequences of discounted stock sales to employees.  ESSP stock may often held by employees as part of their savings for their retirement. My client understood that the ESSP was a “retirement plan”, and he also understood that retirement plans are exempt from creditors under Florida law. Florida Statute 222.21 exempts from creditor process and execution certain tax deferred retirement plans. The exempted retirement benefits are referred to by their enabling statute under the Internal Revenue Code. ESSP plans under Section 423 of the Code are not among the Code sections and retirement plans listed in the exemption statute. Therefore, ESSP plans, and distributions for ESSP plans, are not exempt in Florida. These plans are after-tax stock savings plans and not the type to tax deferred retirement plan that Florida law protects for the benefit of debtors and their family in retirement.

Last updated on May 22, 2020