Money managers stand to gain billions of dollars in new business if Congress limits the percentage of 401(k) assets in company stock or forces diversification of employer securities.
Indeed, an estimated $400 billion would be up for grabs.
Most observers don't expect any of the proposals now before Congress to become law, but they still take them seriously because they surfaced as part of the fallout from the Enron Corp. debacle. Enron employees' 401(k) accounts were decimated when the company's stock price plummeted. Talk about how to prevent another Enron is all the rage.
But don't expect money managers to storm Capitol Hill.
"People who would be making the argument would be making it quietly," said David Wray, president of the Chicago-based Profit Sharing/401(k) Council of America.
"They would be talking about the value of diversification. What you have is people who believe that diversification is right, but also would make more money if company stock is limited."
Such a law "certainly has the potential to have a pretty significant short-term impact" for money managers, said Joshua Dietch, a consultant with the consulting firm of Cerulli Associates Inc., Boston.
"Meanwhile, plan sponsors, their clients, would have to struggle with issues like how to convert the company securities into cash and whether to keep the company's matching contribution at the same rate because, suddenly, the match would hit their books immediately," Mr. Dietch said.
The business strategy would depend on which of the more than 15 bills passed Congress.
Ann Mahrdt, director at Chicago-based Spectrem Group, said the big winners, at least short term, would be money managers already managing investment options in the plans.
"I do not necessarily see a new opportunity for additional funds to be added," Ms. Mahrdt said. "Most plan sponsors see that they already have a nice range of investment choices."
M. Barton Waring, managing director of Barclays Global Investors, San Francisco, agreed: "The mutual fund bundled administrators will reap a windfall ... as the money that might move out of company stock would go to their funds already in the lineup."
Plans probably would not add more investments because the trend is to reduce the number of funds, said C. Frederick Reish, partner with the Los Angeles-based law firm, Reish & Luftman. Fund executives "are more aware of their duty to prudently select and monitor funds."
At the same time, money managers make little or no money managing company stock. It's in their best financial interest to push retail mutual funds, where the get the highest expense ratios of between 25 and 50 basis points, Mr. Reish said.
According to Robert Wuelfing, president of The SPARK Institute Inc., the Simsbury, Conn., legislative and education branch of the Society of Professional Administrators and Recordkeepers, the lion's share of 401(k) revenues comes from asset-based fees.
"Sure we would benefit," said Heidi L. Walsh, vice president and senior marketing manager with T. Rowe Price Associates Inc., Baltimore. However, much depends on what Congress eventually does.
"Are they going to tell us to map the company stock to a large-cap fund?" Ms. Walsh queried.
Currently, only 20% of T. Rowe Price's $34.4 billion in internally managed defined contribution plan assets have company stock investment options; however, T. Rowe Price also has an investment-only business that could benefit.
"The money would push to some (active) large-cap or index products, which everybody has already," Ms. Walsh said. "It would become an individual decision, and access to guidance or advice would make a difference."
To that end, T. Rowe Price, which offers Morningstar Investment's ClearFuture guidance product for free on its website, would push sponsors to offer more education and advice, she said.
Reducing sponsors' stock in defined contribution plans probably would benefit Pacific Investment Management Co., Newport Beach, Calif.
PIMCO, which does not provide record keeping or other non-investment services to defined contribution plans, runs $25 billion in defined contribution assets.
Brent R. Harris, chairman of PIMCO funds and managing director of PIMCO, sees money moving out of company stock as just one factor leading participants to invest in PIMCO's bond funds.
Historically, defined contribution plan participants were underweighted in bond funds, with only about 5% in that asset class, Mr. Harris said.
That is already changing because of the down stock market; movement of money now in company stock could just add to that trend.
"Either by asset allocation or the rule of law (should Congress act) some of those (company stock) assets would likely move to bonds and not cash because cash is paying minuscule returns," Mr. Harris said.