Some of the biggest corporate names controlling some of the biggest 401(k) plans have some of the biggest percentages of employer stock in these plans, reaching levels that consultants and even the Pension Protection Act consider too high.
The exposure sticks out at a time when executives at some companies are trying to reduce the role of company stock by, among other strategies, limiting participants' investments in company stock, providing more education to employees about diversification and even eliminating company stock as a plan option.
Consultants say the overall trend is toward company stock holdings decreasing. Still, according to company-provided data in Pensions & Investments' Feb. 8 issue, large companies and their company-stock holdings include:
• Coca-Cola Co., 51.3%;
• Caterpillar Inc., 44.3%;
• General Electric Co., 42%;
• Target Corp., 42%; and
• Occidental Petroleum Corp., 38%.
“From a financial theory standpoint, most experts would not recommend more than 10%” in a single asset, said Pam Hess, director of retirement research at Hewitt Associates LLC, Lincolnshire, Ill. “Individual investors underestimate the risk of a single stock or the stock in their own company.
“No one thinks they'll be the one who will get into a car accident.”
The car crash doesn't have to be Enron Corp. or WorldCom Inc. As P&I reported last month, accounts of participants in the $8.24 billion BP Corp North America Inc. 401(k) plan (called the BP Employee Savings Plan) suffered losses because they had, on average, 29% of their assets in BP's American depository receipts. Since a BP oil well exploded in the Gulf of Mexico on April 20, killing 11 workers and triggering a massive, continuing oil spill, BP's ADRs are down about 48%.
By contrast, employees in the $4.53 billion Goldman Sachs Group Inc. 401(k) plan weathered the recent jolt to the company's stock. Spokeswoman Andrea Raphael said company-stock accounts for 2% of the 401(k) plan assets.
Goldman's stock hasn't recovered since April, when the Securities and Exchange Commission charged the company and a vice president with defrauding investors about a financial product tied to subprime mortgages. The stock is down about 27% since April 15, the last trading day before the SEC announcement.