Company stock has played the most prominent role in the investment menus of the largest corporate defined contribution plans, although DC consultants predict employer stock's influence will decline.
A Pensions & Investments analysis shows company stock accounted for $207.5 billion, or about 19.4% of the aggregate $1.07 trillion in DC plan assets among the 100 largest corporate plans.
Company stock is the largest option in the companies' plan menus, followed by domestic large-cap equity ($180.8 billion); stable value ($118.9 billion); balanced funds and target-date funds ($103.9 billion); and all other fixed income ($97.3 billion).
The aggregate assets in P&I's universe represent 25.5% of all 401(k) plan assets as measured by the Investment Company Institute for year-end 2013.
(The data for this report were gleaned from federal documents, including the Department of Labor's Form 5500 and the Securities and Exchange Commission's Form 11-K, primarily for companies' 2013 plan years, the most recent data available at the time of the analysis. The analysis covers U.S.-based companies, both public and private, but excludes mutual companies.)
This company stock percentage is subject to wide variations among plans, but consultants say plan executives are looking to reduce the influence of company stock by dropping it, freezing it or placing limits on the amounts that participants can hold in their retirement account.
Still, P&I's analysis found many big corporations had large allocations to company stock in their investment menus for the 2013 plan year, such as ExxonMobil Corp. (61.5%), Chevron Corp. (51.4%), and ConocoPhillips Co. (42.2%). Because declining oil prices since mid-2014 have hit energy stocks, these companies' percentage allocations to employer stock likely will be lower when 2014 plan-year statistics become available.
Other company plans with large employer stock allocations include General Electric Co. (41.5%), Costco Wholesale Corp. (33.4%) and Wells Fargo & Co. (31.6%).
The aggregate finding on company stock “isn't a surprise” to Robyn Credico, the Arlington, Va.-based national director of defined contribution consulting for Towers Watson & Co.
Recent research by her firm covering the 2013 plan year found 75 Fortune 100 companies had an average allocation of 20.1% to employer stock in their DC plans, virtually identical to the same survey's findings in 2012. Eleven of the Fortune 100 DC plans had allocations of 40% or more to employer stock in 2013, the Tower Watson survey said.
Although some DC executives had been exploring or acting on strategies to lessen the impact of company stock in recent years, consultants predict that action will accelerate because of last year's U.S. Supreme Court decision in the case of Fifth Third Bancorp et. al. vs. Dudenhoeffer et. al. In a unanimous decision, the court abolished a long-standing and effective legal defense - the presumption of prudence — used by plans in stock-drop suits.
“We expect to see a decrease in offering company stock,” said Sabrina Bailey, the Seattle-based principal and U.S. defined contribution practice leader for Mercer. “Over time, five to 10 years, the percentage (allocation) should decrease.”