Participants in BP Corporation North America Inc.'s $8 billion 401(k) plan lost an estimated $1.155 billion on their company stock holdings since the Gulf of Mexico well blowout environmental disaster.
The 43.8% drop in value assumes the amount of the plan invested in company stock remained at 29%, as reported last Sept. 30.
Gregory T. Williamson, director-trust investments, BP America Inc., Warrenville, Ill., declined to comment about the BP 401(k) plan.
State Street Bank and Trust Co. manages BP's company stock fund as an independent fiduciary; officials there wouldn't comment. State Street is the master trustee of the 401(k) plan.
Officials at Fidelity Investments Institutional Services Co. Inc., record keeper for the plan, declined to comment, said Mike Shamrell, Fidelity spokesman.
BP PLC American depository shares, which closed at $60.48 on April 20 prior to the explosion that evening, fell to $33.97 by June 11.
Edward A.H. “Ted” Siedle, president, Benchmark Financial Services Inc., Ocean Ridge, Fla., said BP underscores why employer stock should not be an investment option in a 401(k) plan.
“Given the precipitous decline in the (BP) stock and the real possibility of additional decline, it challenges the assumption (participants) should have put 30% (of their accounts) in company stock,” Mr. Siedle said.
“I would say the presumption should be company stock does not belong in a plan,” Mr. Siedle. “When you see a situation like this (BP decline), you see how dangerous it is (to offer an employer stock option) given the conflicts of interest and the lack of diversification.”
BP is among the 47% of more than 300 midsize to large companies that offer employer stock as an investment option, according to data from Hewitt Associates Inc.
Of those companies, 80% have no restriction on the percentage a participant may invest in the 401(k)'s company stock option, down from 82% in 2007, according to Hewitt.
In addition, a slowly increasing number of companies offering employer stock as an investment option impose some kind of limit in 401(k) accounts.
Of the 401(k) plans Mercer LLC administers, only 66, or 11% of its total plan base, offer employer stock, according to Bruce Lee, principal, public relations.
Only five, or 8%, of those plans restrict the amount of employer stock that could be held, Mr. Lee noted. Four of those plans have a 25% limit, while the other plan restricts employer stock to 50%, Mr. Lee noted.
Of the 96 corporations in Pensions & Investments' survey of the 200 largest retirement funds, published Feb. 8, 47 offer 401(k) plans and 43 have an allocation to company stock.
Information of restrictions, if any, BP imposes on company stock investments by plan participants couldn't be learned.