“The availability of an employee stock purchase plan [ESPP] appears to be an effective way that companies can help their employees insulate their retirement savings,” says Emily Cervino, vice president of marketing at Fidelity Stock Plan Services.

“The fact is that employees have lots of savings needs,” she says. “Retirement is obviously a very important savings need, but there are lots of other short- and mid-term savings goals that employees have, like paying for college tuition or buying a home.”

Cervino suggest keeping these needs in mind when advisers and sponsors are designing benefits programs—and being open to alternative approaches, such as the use of ESPPs—may prevent participants from becoming their own worst enemies in preparing for retirement.

For example, she says, “We looked at clients that offered an ESPP with a 401(k), compared with clients that offered a 401(k) and no ESPP. In that study, we analyzed the loan rates against each 401(k) plan. Where companies offered employee stock purchase plans in addition to a 401(k), we found lower loan rates across the board, regardless of company size.”

The difference was especially notable among small companies with fewer than 500 employees—where 9% of workers took out new 401(k) loans when an ESPP was also available, versus 14% at employers that only had a retirement plan. The percentage of participants with an outstanding loan was also lower at smaller companies with an ESPP, 14% versus 23%.

This makes sense, Cervino believes, because stock plans have a lot of liquidity associated with them. “Most plans don’t have any restrictions,” she says. “So, having an alternative savings path for employees that provides a liquid form of investment can help employees resist the temptation to take a loan against their 401(k).”

Dave Gray, vice president of client experience at Charles Schwab, agreed, saying “employees should be educated on the interplay between 401(k) assets [and] the stock plans they may be able to participate in.”

NEXT: ESPP alongside the DC.

Cervino notes there have been some important developments lately in how the courts and regulators view company stock as a retirement investment—whether inside or outside a qualified defined contribution plan (see "DOL Sues Firm Over Company Stock Purchases", "Company Stock Considerations Depend on Employer Goal," and "DC Plan Use of Company Stock More Restricted"). This has translated to some plan sponsor hesitancy in offering employer stock options.

The PLANSPONSOR 2015 Defined Contribution Survey found that while many large and mega plans offer employer stock in their retirement plan—21.2% and 43.4%, respectively—fewer than one in 10 micro, small and mid-sized plans include stock in their investment options—1.4%, 3.2% and 8.3%, respectively.

“We have had some interest in employee stock purchase plans as an alternative path to employee stock ownership where it’s no longer available through the 401(k),” Cervino says.

Equity compensation options can serve as a kind of loophole for retirement plan advisers and sponsors that are wary of facing a “stock drop” lawsuit of their own. “I view equity compensation as being outside that because it’s outside the ERISA [Employee Retirement Income Security Act] structure,” Gray says. “But, if an employer is offering a 401(k) and an equity plan, whether it’s an ESOP or it’s an equity plan outside the ERISA structure, I think it’s really incumbent on sponsors to think about the advice or the professional management solution they’re offering in the 401(k) plan, and it’s really important that the advice solution account for the presence of employer stock.”

Among the considerations to be wary of when adding employer stock outside the retirement plan, Gray warns: “Typically when employees are educated on diversification, or when they are defaulted into a target-date fund [TDF] or a balanced fund or an asset-allocation model, those models are just looking at what the employee has in the 401(k) plan alone. And, if you have a large position in stock ownership, it may actually be presenting the wrong view as to how you should be invested in your 401(k).”

NEXT: Aligning interests.

As an example, Gray says, “If someone has a significant amount of assets in a stock purchase plan outside of the 401(k), and the 401(k) is blind to it, the typical asset-allocation recommendation for that 401(k) may put [the investor] at a very high equity allocation, when in reality they should probably be at a lower equity allocation in their 401(k) and be taking less risk because of the level of risk they’re taking outside the 401(k).”

A target-date fund often has no insight into an individual’s stock ownership outside of the qualified plan, Gray says, but more personalized advice can deliver that view. If an employer has a stock purchase program, he says, the retirement savings plan must take into account the value of that stock purchase relative to the person’s total wealth.

Another benefit of equity compensation is that it aligns the interests of employees along with those of the company’s shareholders, plus it gives employees incentive and an interest in the company’s success.

A best practice for employers offering an employee stock purchase as well as a 401(k) plan is to “emphasize the value of ownership,” Gray says. Employees may not realize that the equity award program is meant to create a sense of ownership, he says, “and that ownership is at two levels: sense of ownership in the company and … their future.”

Along with the 401(k), Gray believes stock options should be presented to workers as one of the two key drivers that employees are going to leverage to determine their financial future.

“For a plan adviser, I think the opportunity here is to help the employer understand the interplay between equity programs and 401(k) asset allocation,” Gray says. “Help the employer see that we need to look at the total wellness forecast of the individual when designing solutions for the 401(k). It’s more about that than the underlying funds.

“The adviser can deliver a tremendous amount of value to the employer by helping them understand that interplay,” he concludes. “Make that not only a part of the communication around the solution—it should actually be a part of the solution.”