Americans continue to overload their 401(k) accounts with company stock. Inside companies like Procter & Gamble, the concentration climbs to dangerous levels of 90% and higher, according to the Institute of Management and Administration in New York (see “Retirement Plan Assets in Company Stock,” right).
Of course, firms are contributing to the problem by matching employee contributions with stock. But employees themselves are also to blame, says James Delaplane, vice president of retirement policy with the American Benefits Council in Washington, D.C.
“You're not going to get up to something as high as 80% or 90% unless that employee has chosen to very substantially weight his own contribution in company stock,” Delaplane says. “And that may be a case of participants not being as educated as they should be about diversification.”
Nevin Adams, executive editor of plansponsor.com in Greenwich, Conn., also blames participants. “Part of the problem is that participants are not pushing for that extra level of education because they think they understand company stock,” he says. “They feel it's a mark of loyalty to invest in company stock. And the company, frankly, wants them to invest in company stock.”
Although plan sponsors have a fiduciary responsibility to protect plan participants, they're “probably not” responsible for making sure participants diversify, Adams says. In fact, employees who have tried to make changes in their 401(k) plans by suing employers that match employee contributions solely in company stock have not been successful, he says.
According to a survey by Fidelity, about 9% of its plans match employee contributions in company stock and do not allow changes (see Building Futures at http://buildingfutures.fidelity.com).
However, some relief may be around the corner. A handful of firms are taking the initiative to keep employees from overconcentrating. Fidelity found that 7% of defined contribution plans limit company stock holdings. The limits range from 10% to 50%. The most common cap is 25%.
Retirement Plan Assets in Company Stock
Procter & Gamble 94.7%
Abbott Laboratories 90.2%
Dell Computer 88.2%
Pfizer 85.5%
Anheuser-Busch 81.6%
Coca-Cola 81.5%
McDonald's 74.3%
SOURCE: INSTITUTE OF MANAGEMENT AND ADMINISTRATION