Surveys demonstrate that company stock, on average, is playing a much reduced role in defined contribution plan menus.
The latest Pensions & Investments survey of the nation's largest retirement plans shows that among the biggest DC plans, company stock represented a 15.6% allocation as of Sept. 30. Data from previous surveys show an almost steady annual drop from the 24.7% stock allocation in 2006, the year the Pension Protection Act was passed.
Surveys by Aon Hewitt, Lincolnshire, Ill., yield similar results. Aon Hewitt reported company stock had dropped to an average allocation of 16% among participants in plans that offered a company stock investment option in 2011, the last year for which data were available. That reflected an almost steady annual decline from the 25.8% in 2005.
Aon Hewitt noted that 43% of participants in 2011 didn't invest in a company stock fund even though their 401(k) plans offered it, while 29.7% had an account weighting of less than 20%.
However, 10% had more than half of their retirement funds in a company stock fund. “That's definitely a concern,” said Patti Bjork, director of retirement research.
More employers are moving away from offering stock as a matching contribution, she said. Among DC plans allowing company stock funds in 2011, only 12% required that matching contributions initially be made exclusively in employer stock, down from 45% in 2001.
Annual surveys by the Plan Sponsor Council of America, Chicago, also show an almost steady decline from 2002 to 2011 — the latest data available — in the rates of stock ownership exceeding 50% in 401(k) plans. The latest survey, published in October, said 5.3% of plans had more than half of their assets in company stock. In 2002, the rate was 16%.
“Company stock as an option is waning, and it will probably have a downward spiral,” Robert Benish, interim president and executive director of the PSCA, said in an interview.
Despite the discussions over employer stock in DC plans, this option remains a large-company issue, said Jean Young, senior research analyst at the Vanguard Center for Retirement Research, Malvern, Pa.. At the end of last year, a survey of 2,000 Vanguard clients showed 10% offered employer-stock. Among plans with more than 5,000 participants, 39% offered a company-stock option.
This article originally appeared in the March 4, 2013 print issue as, "MORE PLANS TURNING BACKS ON COMPANY STOCK OPTIONS".