Head to head: In the midst of a cost-of-living crisis, should employees contribute to a DC plan or an ESOP?

When I joined Starbucks in 2017, I was 18 and not really thinking about retirement or long-term financial planning.

During onboarding, I learned about the company’s benefits, including Bean Stock grants awarded annually to full- and part-time employees as part of Starbucks’ total rewards package. I didn’t pay much attention to it at first, but after setting up my account and seeing the value that had accumulated, my perspective changed.

Read: How do employee share ownership plans fit into a full suite of savings options?

As shares vest, employees can hold or sell them based on their goals, making ownership feel tangible and immediate compared to a traditional pension plan. Starbucks also offers a stock investment plan, allowing employees to purchase shares at a five per cent discount through payroll deductions to further support financial goals.

As my shares grew, I became more curious about how investing works. I started paying attention to the stock market, following company news and learning how value grows over time. I don’t think I would have done any of that if I hadn’t had something tangible to watch and learn from.

I can continue saving for long-term goals while also using shares when needed for short-term expenses. Two years ago, I used it to help pay for a family reunion trip to Germany with my dad and to cover an unexpected vet bill, making it a simple way to support both major goals and everyday financial stability.

Read: Head to head: Should the U.S. ESOP structure be brought to Canada?

I often tell new employees that Bean Stock makes saving feel more accessible. By tying rewards to company performance, it connects individual contribution to shared success. For me, it changed how I think about money and strengthened my financial confidence.

Matt Davison, dean of science and professor, Western University

In difficult times like the present, it isn’t always easy to find additional cash flow at the end of the month to allocate to longer-term goals.

But what if allocating funds to present needs means losing out on a valuable employer match? Typically, employers provide at least some match to defined contribution pension plans and to employee stock option plans. It might not be feasible to maximize both of these benefits, so which one should employees choose?

As usual, the answer is, ‘it depends.’ For instance, if the employer match is 2-to-1 for an ESOP but only 0.5-to-1 for a DC plan, it may be hard not to max out the ESOP match. Additionally, if workplace politics place value on owning a substantial amount of company stock in order to earn the next promotion, that must also be considered.

Read: Young Canadians prioritizing flexibility as retirement outlook shifts: survey

However, in a situation where there’s no career benefit to participating in one against the other — and the matching rates are also the same — I think it’s clear that contributing to the DC plan makes more sense.

Stock returns matter, but so do the risks. The problem with investing in the stock of an employer is that an event that negatively impacts the price of stock may also lead that employee to lose their job. And if they live in a location where employment is focused on a single industry, they might also lose equity value in their house.

However, perhaps this is a false choice. Employees should ask themselves if all of their short-term expenses are truly necessary — if they could save another $100 a month, it could potentially unlock an additional $100 of matching contributions.

Blake Wolfe is the managing editor of Benefits Canada and the Canadian Investment Review.