In its latest annual DC plan survey, Callan Associates Inc. reported that 30% of plan executives from a broad range of industries said they had placed a cap on company stock contributions in 2015. Also, 6.7% froze the amount of available company stock.
The Callan survey, published in January, noted that 73.3% of executives said they communicated diversification principles to participants and 46.7% offered tools “to improve diversification out of company stock.”
Vanguard Group Inc., Malvern, Pa., has detected efforts by sponsors and participants to reduce reliance on company stock in DC plans.
Among Vanguard client plans actively offering company stock, 82% had allocations to the option of 20% or less in 2015 vs. 73% in 2006, according to a June report. Fourteen percent had allocations of 21% to 40% last year vs. 19% of plans in 2006. Four percent had allocations exceeding 41% vs. 8% of plans in 2006.
Among participants in plans actively offering company stock, 28% invested 21% or more of their account in company stock last year vs. 38% in 2006. The Vanguard report offered several explanations of why so many participants still hold so much company stock.
“Most participants view company stock as a safer investment than a diversified equity fund,” the report said. “Another factor encouraging concentrated stock holdings is the plan sponsor's decision to make an employer contribution in company stock. This implied endorsement often leads participants to invest more of their own savings in the stock as well.”
One energy giant that stopped making its corporate match in company stock is San Ramon, Calif.-based Chevron. It ended the practice in February 2015, according to its latest 11-K statement. However, company stock still plays a giant role in its 401(k) plan.
Last year, company stock accounted for $7.08 billion, or 41.8% of the 401(k) plan's $16.95 billion in total plan investment assets. In 2014, company stock represented $8.87 billion, or 47% of assets. Between 2014 and 2015, the company-stock fund lost 20.2% of its value; overall plan investments declined by 10.2%.
National Oilwell Varco, Houston, recently took steps to reduce the impact of company stock. Effective Dec. 31, the NOV Stock Fund “will no longer be an available option when investing new participant contributions or reallocating existing funds within the plan,” said the latest 11-K statement. No explanation was provided.
Last year, company stock played a modest role in the company's 401(k) plan. The stock fund's $100.7 million in assets represented 7.2% of total investments of $1.39 billion. From 2014 to 2015, total plan investment assets dropped by 11.9%; the company stock fund fell 27.6%.
Company stock was a major component of the 401(k) plan of Occidental Petroleum Corp., Houston. Last year, the $644.3 million in company stock accounted for 39.6% of the plan's total of $1.63 billion. Between 2014 and 2015, total plan investments declined 13.2%, but the stock fund fell 19.9%.
In the 401(k) plan of Oklahoma City-based Chesapeake Energy, company stock assets of just less than $50 million accounted for 11.2% of total plan investments of $444.5 million. This percentage means “net assets available for benefits are particularly sensitive to changes in the value” of the company's common stock, Chesapeake's recent 11-K statement said.
But those comments don't tell the whole story. In 2014, company stock accounted for $217.1 million, or 37% of total 401(k) plan investment assets; and in 2013, company stock represented $387.8 million, or 46.4%. In each year's 11-K statement, Chesapeake made the same warning about stock volatility.