GREENWICH, Conn. — One-third fewer companies made their 401(k) match in company stock last year, a new survey shows.
At the same time, the number of companies offering employees a choice of receiving the employer match in either cash or company stock tripled.
In 2004, 19% of companies with combined defined benefit and defined contribution assets of more than $250 million made the employer match in company stock, down from 31% in 2003, the report from Greenwich Associates, Greenwich, Conn., shows. The Greenwich survey also showed that last year, 9% of companies allowed employees to choose whether they wanted the employer match in stock or cash, compared with 3% in 2003.
Despite those statistics, companies surveyed still have almost 23% of their defined contribution assets in employer securities, according to the report, "Defined Contribution: The Only Game in Town?"
Chris McNickle, a Greenwich consultant, said in an interview that the fear of litigation has prompted more companies to offer employer matches in cash.
"High-profile events (such as the collapse of Enron Corp. and WorldCom Inc. and the resulting lawsuits filed by participants in their 401(k) plans against the companies) have taken place and plan sponsors who might not have paid attention to them in the past are doing it now," said Mr. McNickle.
He said lawmakers and regulators in Washington might examine the high proportion of company stock held in defined contribution plans. "If companies don't take steps on their own, they are at risk of having regulators determine new rules for them," said Mr. McNickle. "It is all part of the overall need for diversification.
"The over-investment in company stock puts plan participants at higher risk," he said.
The report also compares asset allocations in defined contribution plans to those of defined benefit plans.
For example, passive equities account for 11.7% of a large defined contribution plan's assets, vs. 16% of a defined benefit plan's assets. "Index funds are a good way to diversify a portfolio," said Mr. McNickle, pointing out participants "could benefit from the low fees of index funds."
Only about 4% of DC assets are in international equities, while 17% of DB assets are in international stocks. "Individuals have a lower risk tolerance, (but) they could benefit from the diversification offered by international stocks," Mr. McNickle said.
Although the report doesn't specifically mention lifestyle or asset allocation funds as another route to diversification for defined contribution plan participants, Mr. McNickle said the survey's first-time inquiry into lifestyle funds found 8% of the assets of large defined contribution plans are in lifestyle funds.
"That (8%) is not a trivial number," and it should increase over time, Mr. McNickle said.