HNI Employees: Smarter Ways to Manage Taxes on Appreciated Stock
Healthcare Provider Update: HNI Corporation offers health insurance coverage to its U.S. employees through medical, dental, and vision plans, along with prescription benefits. The company provides Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) with employer contributions, as well as company-paid life and disability insurance. Preventive care and wellness programs are also included.
HNI Corporation
Healthcare costs in the United States are projected to continue rising through 2026, with insurers proposing significant premium increases for Affordable Care Act (ACA) plans. A recent analysis found that ACA insurers are seeking a median premium increase of 15% for 2026, marking the largest hike since 2018. This surge is attributed to factors such as the anticipated expiration of enhanced premium tax credits, rising medical costsincluding expensive medications and increased hospital staysand a shift in the risk pool towards higher-cost enrollees. Without the renewal of enhanced subsidies, out-of-pocket premiums for ACA marketplace enrollees could increase by more than 75% on average.
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'HNI employees with concentrated stock positions may benefit from thoughtful tax planning that allows for tax deferral while balancing liquidity, compliance, and long-term compounding,' Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.
'HNI employees who hold highly-appreciated stock may want to consider tax-efficient strategies that help mitigate their liabilities while aligning with their overall retirement goals,' Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article, we will discuss:
How taxes can affect investment returns, particularly on concentrated stock positions.
Exchange funds and options-based strategies as methods for tax deferral and diversification.
Alternative planning techniques outside ETFs, including charitable trusts and gifting strategies.
By Carlos Hernandez, Wealth Enhancement advisor
When it comes to driving portfolio returns, many investors aim to keep management fees low by investing in low-cost index funds and exchange-traded funds (ETFs). While fees matter, however, the real culprit for lower-than-anticipated performance is taxes.
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Wealth Enhancement advisor Carlos Hernandez explains: 'By losing less to taxes each year, investors have access to more capital that can continue to compound over time. This makes tax deferral an important part of an effective financial plan.' HNI employees looking for long-term growth strategies could benefit by understanding how to better manage their investment tax burdens.
Trade Money
One area where taxes can take a toll is on the sale of company stock or other concentrated investment positions. HNI professionals looking to diversify could face significant capital gains taxes on an outright sale. One way to diversify without triggering immediate capital gains is through exchange funds. By contributing their highy-appreciated stock to a pooled fund, investors can trade their concentrated holdings for shares in a diverse basket of securities. This method can be used by HNI employees who want to diversify while postponing taxable events.
Although this method allows for tax deferral, it also requires investors to hold the exchange fund for a period of time, typically seven years.
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This could create a challenge for investors who require liquidity. Additionally, these funds are often exclusively accessible to wealthy, accredited investors—something HNI executives should carefully evaluate.
Funds Based on Options
Another way to mitigate taxes on the sale of highly-appreciated stock is by using options contracts. The idea is to hedge risk with put options while covering the cost of those puts by selling call options—a strategy called 'collaring'. From there, the strategy reverses, with investors selling put options and using the proceeds to buy call option on an equity or bond index.
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If managed effectively, this helps to diversify a concentrated portfolio while still maintaining liquidity.
Given the complexity of this strategy, meticulous planning is necessary. It's generally recommended that investors work with an experienced financial advisor before pursuing this approach.
Things to Be Aware of
Although these strategies can be beneficial for HNI employees who hold highly-appreciated stock, caution is recommended. There are costs associated with these approaches, and potential liquidity risks. Additionally, the IRS may eventually contest such arrangements because their tax status has not been thoroughly examined—something HNI retirees should keep top of mind.
'Tax drag reduction strategies can be effective, but they must be assessed through the lens of risk, liquidity, cost, and compliance,' warns Carlos Hernandez. What is appealing in theory must hold up to inspection in the real world.
Alternative Strategies
Although they show promise, investors with highly-appreciated stock or those looking to postpone gains have other alternatives besides exchange funds or options. Other tactics could include:
- Prepaid variable forwards (subject to IRS regulations, contracts to sell at predetermined terms in the future).
- Charitable remainder trusts (CRTs), which allow investors to donate appreciated stock to a charitable trust and receive a stream of regular income in return.
- Donor-advised funds (DAFs), which provide investors with a tax deduction for the fair market value of the appreciated stock they donate.
- Other gifting techniques, such as direct donations to charity or family.
Each has its own set of guidelines, advantages, and disadvantages. To limit unnecessary taxes or violating the constructive sale regulations, careful planning is necessary for HNI professionals managing complex portfolios.
The Bottom Line
Although the movement to mitigate the tax burden on investments is not new, the instruments are changing. Both exchange funds and options-based structures offer investors a way to manage tax liabilities, especially for HNI employees who hold highly-appreciated stock.
In the end, taxes are unavoidable. However, with the correct set of instruments, they can be controlled and postponed. 'The real value comes from aligning tax strategy with investment strategy,' summarizes Carlos Hernandez.
The HNI 401(k) plan is a retirement savings plan that allows employees to save a portion of their paycheck before taxes are taken out, helping them prepare for retirement.
How does HNI match contributions to the 401(k) plan?
HNI offers a matching contribution up to a certain percentage of employee contributions, which helps to enhance the overall retirement savings.
When can I enroll in HNI's 401(k) plan?
Employees can enroll in HNI's 401(k) plan during the initial onboarding process or during the annual open enrollment period.
What are the eligibility requirements for HNI's 401(k) plan?
To be eligible for HNI's 401(k) plan, employees typically need to meet certain criteria, such as being a full-time employee and completing a specified period of service.
Can I change my contribution rate to HNI's 401(k) plan?
Yes, employees can change their contribution rate to HNI's 401(k) plan at any time, subject to plan rules.
What investment options are available in HNI's 401(k) plan?
HNI's 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles to suit different risk tolerances.
Does HNI provide financial education resources for employees regarding the 401(k) plan?
Yes, HNI provides financial education resources and tools to help employees make informed decisions about their 401(k) savings.
What happens to my HNI 401(k) if I leave the company?
If you leave HNI, you have several options for your 401(k), including rolling it over to a new employer’s plan, an IRA, or cashing it out (though cashing out may have tax implications).
Is there a loan option available through HNI's 401(k) plan?
Yes, HNI's 401(k) plan may allow employees to take loans against their vested balance, subject to specific terms and conditions.
How often can I access my HNI 401(k) account statements?
Employees can access their HNI 401(k) account statements online, typically on a quarterly basis, or they can request them as needed.
With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
HNI Corporation provides both a 401(k) plan and a pension plan for its employees. HNI's 401(k) plan offers a company match where employees can contribute to their retirement savings. The match formula includes 100% matching on the first 1-3% of employee contributions, and 50% matching on the next 2%. This means HNI will match up to a maximum of 4% of an employee’s contributions, as long as the employee contributes at least 5% (PlanPerfect).
The HNI pension plan is a defined benefit plan that requires employees to meet specific service and age qualifications. Employees typically need to complete one year of service before they are eligible for the pension plan. The pension formula is based on the employee’s final average pay and years of service. The specific name of the pension plan is "HNI Defined Benefit Pension Plan," and it applies to employees who meet the age and service requirements set forth by the company
In early 2024, HNI Corporation announced a significant restructuring plan aimed at streamlining its operations and reducing costs. The company will be implementing layoffs affecting approximately 5% of its workforce. This move is part of a broader strategy to enhance operational efficiency and adapt to changing market conditions. Given the current economic climate, where companies are re-evaluating their cost structures amidst economic uncertainty, it is crucial for affected employees and stakeholders to stay informed about these changes. Additionally, the restructuring may impact company benefits and pension plans, necessitating close attention to any modifications in these areas.
Stock Options and RSU Acronyms
Identify the acronyms used for stock options and RSUs.
Provide details on how these options and units are structured and allocated.
Company-Specific Details
Review HNI Corporation’s stock options and RSUs for the years 2022, 2023, and 2024.
Determine who is eligible for these benefits.
Source and Documentation
Include specific sources and page numbers for verification.
Official HNI Corporation Website
Health Benefits Overview: HNI’s official website typically provides an overview of its employee benefits, including health insurance, dental and vision coverage, and wellness programs.
Key Terms: Health Savings Account (HSA), Flexible Spending Account (FSA), Premiums, Deductibles, Coinsurance, Out-of-Pocket Maximums.
Glassdoor
Employee Reviews: Employees often review benefits on Glassdoor, detailing their experiences with HNI’s health insurance plans, including the quality of the plans and any changes over the years.
Key Terms: PPO (Preferred Provider Organization), HMO (Health Maintenance Organization), Copays, Network Coverage.
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