When it comes to company stock in defined contribution plans, two recent surveys indicate many plan sponsors are unsure of what to do.
At minimum there is no clear consensus on how sponsors with company stock in their plans expect to deal with these investments in the future. Close to a quarter of 401(k) assets, 22%, are in company stock, and a third of companies with matching contributions in company stock place restrictions on its sale or transfer, according to a recent study by Spectrem Group, a Chicago-based consulting firm.
The companies most likely to offer company stock as an investment option are those with more than $200 million in defined contribution plan assets; and plans that offer company stock both as a core investment option and in matching contributions have the highest proportion of plan assets in company stock, according to Spectrem's survey of 100 plan sponsors with at least $50 million in assets.
Still, one-third of sponsors with $100 million or more in plan assets said they intend to change the way company stock is used in their plans. But more than half, 57%, of those plan sponsors aren't sure what changes they will make. Eighty-three percent of plan sponsors didn't make changes to their matches in 2001. Of those 401(k) plan sponsors that know what modifications they are planning to make to their matching contributions, 24%, will change the age at which participants can sell their stock; 10% will limit the amount of company stock participants can hold; and another 10% said they will allow participants to purchase more company stock.
No participant limits
Only a small number of companies limit the proportion of company stock in a participant's account. None of the companies that offer company stock both in their matching contributions and as an investment option put a limit on how much company stock participants can hold.
A second study also completed this year, by Hewitt Associates LLC, Lincolnshire, Ill., found 38% of plans surveyed made all or part of their matching contributions in company stock, and 86% of them placed restrictions on the transfer of the stock. Also, 36% of the 200 plan sponsors surveyed place some additional restriction on participants' ability to transfer from the company stock fund, once they are eligible to diversify.
Few plan sponsors took action last year, either by easing restrictions or deciding not to. Thirteen percent of sponsors eased restrictions on the transfer of company matching contributions in 2001, and 8% decided to leave transfer opportunities unchanged, the Hewitt study indicated. Twenty-seven percent said they are "very likely" to allow participants to diversify out of company stock, but 22% indicated they were "very likely" to leave diversification restrictions unchanged.
"Plan sponsors have looked at overall structure of their plans given market volatility, but there has not been a lot of change," said Lori Lucas, a defined contribution consultant for Hewitt.
Meanwhile, since the collapses of Enron Corp. and Global Crossing Ltd., about a quarter of the companies surveyed by Spectrem reported receiving some participant inquiries about their plans' company stock holdings. Most of the participant inquiries, 59%, were about the safety of their company stock investment and the company's financial health, according to the Spectrem Group. Another 33% concerned clarifying plan rules on company stock in their plans.
But a vast majority of those sponsors surveyed by Spectrem, 80%, indicated their current investment education programs do address company stock investment issues.
Of the plan sponsors surveyed by Hewitt, some 54% of those with plans that have a company stock fund said they intend to send additional written materials to participants, and 27% expect to offer online material about company stock in 401(k) plans. But 31% either don't know or do not plan to send additional communication this year.
