The highly popular 401(k) plan was a great deal for corporations. They got credit for offering employees a retirement plan, but shifted most of the cost and all of the investment risk to the employees.
But that wasn't enough for some employers. They sweetened the deal for the company even more by making the company's matching contribution in company stock. And some went even further by restricting the ability of the employees to sell their stock, often until they were within 10 or 15 years of retirement. That interfered with employee asset allocation and investment choices.
The restriction was in the interests of the company, not the employees. It saved corporate cash, and it placed a large and growing block of stock in friendly - and handcuffed - hands. It made the 401(k) plan a no-risk, no-accountability retirement financing model. And it provided protection against any unwelcome takeover bid.
But it also had the potential of hurting the employees, and in several cases, e.g. Lucent Technologies Inc. and Enron Corp., it has. It made employees shareholders without one of the major rights of a shareholder - the right to vote with his or her feet, that is, sell the stock when the prospects of the company change.
Congress must amend the Employee Retirement Income Security Act to prohibit corporate restrictions on what employees do with the stock contributed to defined contributions in their names.
While the goal of increasing employee ownership in corporate America is a noble one, the employees should not be forced into an ownership position. If they are to take on the responsibility of investing their retirement assets, they must have freedom to do so. If they think the company stock contribution makes their portfolio undiversified, they must have the freedom to rebalance.
