Reacting to corporate scandals of recent years, 16% of defined contribution plan sponsors made their company stock diversification rules less restrictive in 2004, up from only 1% the year before, a survey by Pensions & Investments and Deloitte Consulting LLC, Wilton, Conn., shows.
"When the 2003 survey was taken, the news about company stock scandals (such as Enron Corp. and WorldCom Inc., now MCI Inc.) had just broken and plan sponsors hadn't had much time to react. By 2004, they took action," said Leslie Smith, a principal at Deloitte.
The corporate fraud scandals resulted in the firms' 401(k) participants losing large amounts of money invested in company stock when the price of those stocks plummeted.
Defined contribution plan sponsors also got tough on under-performing and scandal-tainted mutual funds last year.
The number of plan sponsors that replaced a mutual fund last year because of poor performance rose to 37%, from 29% in 2003, while the number of sponsors that said they have never dropped a fund because of performance fell to 25% from 32%.
Some 12% of respondents dropped a mutual fund because of the mutual fund trading scandals that were revealed beginning in 2003, and 5% said they had considered doing so.
In addition, 86% of plan sponsors said they used funds from multiple fund families in 2004, an eight percentage point rise from 2003.