DARIEN, Conn. - Defined contribution plan sponsors have grown increasingly concerned about the percentage of participant assets invested in company stock in recent years, according to a new survey by RogersCasey & Associates.
The survey of 500 companies that offer 401(k) plans also found nearly 20% of plan sponsors say they might use, or have considered using, negative election, whereby employees automatically are enrolled in the 401(k) plan unless they specifically request to be removed.
Negative enrollment is only used by a few employers (Pensions & Investments, March 31). But the RogersCasey data suggest the idea has at least gathered serious attention among employers, according to Adele Heller, director, asset services.
Nearly one of every five plan sponsors say they might consider negative election and 6% say they are considering it. Ms. Heller said further analysis indicates the percentage is even higher among companies with low-wage earners and high employee turnover and among companies with plan participation rates of more than 95%.
She said additional analysis indicates about 13% of companies with already high participation rates are considering negative election.
The RogersCasey survey, conducted with the Institute of Management and Administration, found nearly 70% of plan sponsors expressed some degree of concern over the percentage of 401(k) assets invested in company stock.
But the data also found that while companies might be concerned, "there appears to be no concerted effort to reduce that overall exposure to company stock in 401(k) plans," said Robin S. Pellish, managing director and senior consultant at RogersCasey.
Overall, 30% of 401(k) plans offer company stock as an investment choice, but as the number of participants increases, the percentage with company stock as an option increases substantially. Nearly half of all plans with more than 5,000 participants and 80% of plans with more than 10,000 participants offer company stock.
According to the survey, the largest plans - those with more than 10,000 participants - have greater concentrations of 401(k) assets invested in company stock, 27%, compared with the 10% average for the survey. And, said Ms. Heller, several companies have upward of 50% allocations to company stock.
If plan sponsors are concerned about concentrating 401(k) investments in company stock, why are these plans not taking action to reduce that exposure?
Ms. Heller said the data suggest "the only thing they can do is to educate the participants better."
The survey found the most pressing issue facing plan sponsors in the next five to 10 years is employee education, cited by 70% of the respondents; ranking ahead of investment performance, 40%; regulatory compliance, 37%; and asset allocation, 34%.
