Company stock finds smaller role with participants
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Comvest closes credit fund at $1.3 billion
      Wall Street signage in the Financial District of New York
      Assets in alternative investments set record in 2020
      Non-profit questions dividend recapitalization play at Ares portfolio company
      Walker & Dunlop appoints managing director
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • Pandemic takes toll on real estate fundraising in 2020
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Insurers taking on more portfolio risk as pandemic ebbs – survey
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Comfortable retirement still on track for most Americans despite pandemic – survey
      Pentegra joins with EPIC to offer 3(16) fiduciary services
      Interest rises in keeping retiree assets in-plan
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
    • CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      Yale rolls out 5 principles for endowment on fossil-fuel investing
      Pension funds hear from beneficiaries on ESG – report
    • Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
    • Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
    • The seal of the Securities and Exchanges Commission at the agency's headquarters in Washington
      SEC said to review fund disclosure rules after Archegos rout
      Trillium hires 2 to lead expansion into U.K.
      CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
    • Blackstone AUM climbs 4.9% in latest quarter
      Trillium hires 2 to lead expansion into U.K.
      Credit Suisse logo
      Credit Suisse expects further hit from Archegos scandal
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • Denmark’s ATP plans bid to build North Sea energy island
      PennPSERS taps Verus for oversight consulting services amid probe
      State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • Trillium hires 2 to lead expansion into U.K.
      Walker & Dunlop appoints managing director
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
      Philip Pearson
      Hymans Robertson chooses head of LGPS investment
    • EQT closes latest private equity fund at $18.7 billion
      U.S. $100 bills
      AlpInvest raises $3.5 billion for latest co-investment fund
      ILPA members making diversity a bigger priority in private equity
      European private equity deal value, volume hit records for first quarter
    • Pandemic takes toll on real estate fundraising in 2020
      J. Tomlinson Hill
      Two Sigma takes quant expertise into real estate investing
      BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. DEFINED CONTRIBUTION
August 24, 2020 12:00 AM

Company stock finds smaller role with participants

Diversification becomes important tenet to cut risk in 401(k) accounts

Robert Steyer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Photo: Robert Tannenbaum
    Robert Austin said the trend against company stock has been steady.

    Long before the coronavirus tore through the economy and the stock market, defined contribution executives were taking steps to moderate the potential impact of radical swings in their participants' holdings of company stock.

    Through plan design changes and continuing education, sponsors have increased diversification and reduced the role of company stock. Their goals: improve outcomes and reduce the risk of owning too much of an undiversified asset, especially during market volatility.

    "There has been a steady trend away from company stock," said Robert Austin, the Charlotte, N.C.-based director of research for Alight Solutions.

    As proof, he pointed to the Alight Solutions 401(k) index, a monthly measurement of participant actions — trading inflows and outflows plus contributions and allocations — in 13 asset categories since 1997.

    At year-end 1997, company stock represented 30.6% of DC plan asset allocations. That percentage has gone almost steadily downhill since, reaching 5.7% in July 2020. The index includes plans with about $200 billion in assets covering more than 2 million participants in Alight record-keeping accounts.

    Among record-keeping clients of Vanguard Group Inc., Malvern, Pa., 8% offered company stock last year vs. 11% in 2010.

    At Fidelity Investments, Boston, about 2% of client plans offer company stock, down from 4% in June 2010. Company stock represents 4.9% of participants' assets in 401(k) plans, down from 10.4%, spokesman Michael Shamrell said.

    As a result, the coronavirus' overall market impact on participants owning company stock in their 401(k) portfolios may not have been dramatic, primarily due to company stock's diminished role but also to relatively little panic selling, consultants and researchers said.

    "I don't think the pandemic spurred a rush out of company stock," said Mr. Austin, basing his comments on Alight index's tracking outflows and inflows for accounts due to participants' trading.

    For April, May and June, the total outflow of company stock from these accounts was about $160 million, he said. By contrast, net trading outflows of company stock totaled $1.46 billion for all of last year. "So a three-month total of roughly $160 million would not suggest a rush out of company stock," Mr. Austin said.

    Robyn Credico, the Las Vegas-based defined contribution consulting leader for Willis Towers Watson PLC, said she doubted participants did much company-stock trading — or any trading — even during the worst of the stock market's decline. For participants, "everyone is a deer in the headlights," she said. "People have stayed where they are."

    Ms. Credico said participants face a conundrum with company stock: they may not want to sell if the stock has fallen sharply, and they may not want to sell if the stock is rising.


    IRS guidance a key

    Sponsors reviewing company stock and other plan options are mindful of IRS suggestions on asset diversification.

    "If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified," says an IRS guidance document covering sections of the Pension Protection Act of 2006. "Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk," said the document, which addresses investors as well as sponsors.

    Consultants have differing views about company stock percentages in retirement accounts. Some prefer lower percentages, but Ms. Credico said her firm believes sponsors are wise to refrain from setting a specific limit. "Providing a cap could be seen by participants as an endorsement of the percentage," she said.


    Education is essential

    Education remains a first line of defense for sponsors against the risks of holding too much company stock, according to annual surveys by Callan LLC , said Jamie McAllister, the Chicago-based senior vice president and defined contribution consultant.

    In its latest survey, published in January, the firm asked sponsors what they did to limit potential liability for company stock. The top answer last year (65.5%) was "communicate to improve diversification out of company stock."

    Ms. McAllister said communication has been the top answer in previous Callan surveys. Some sponsors tailor education campaigns to participants with very high concentrations of company stock in their accounts, she added.

    Among the 10 choices in the latest survey, the second biggest response was regular reviews of company stock at investment committee meetings (53.1%). The survey covered 114 sponsors, most of which are 401(k) plans.

    Sponsors emphasize education rather than capping, freezing or eliminating company stock, Ms. McAllister said. "They fear people might think there's something wrong with the company" if sponsors took strong action.

    Still, more sponsors are imposing restrictions. Alight Solutions reported last year that 35% of companies offering company stock in 401(k) plans limited new contributions by participants, limited the percentage of participant balances devoted to company stock, or both. In 2015, Alight said 24% of companies enacted these restrictions.

    Alight found that a 20% cap was the most frequently used on employees' holding company stock. Sixty-nine percent of sponsors limiting employee contributions and 58% of sponsors limiting employee balances imposed this cap. Among others, some caps were as low as 10% or as high as 50%, Mr. Austin said.

    One company that places a 50% cap on participants holding company stock is Parker-Hannifin Corp., Cleveland, according to the latest 11-K statement for a 401(k) plan that has 29.1% of assets in company stock. A Parker-Hannifin representative didn't respond to a request for comment.

    Falling out of favor

    The Alight survey also found a dramatic decrease in employers' use of company stock as a 401(k) match.

    In 2001, Alight reported that 45% of survey respondents offered company stock as a match. Last year, only 6% offered it.

    A review of the latest 11-K statements by Pensions & Investments noted several companies offering company stock as a match, including Parker-Hannifin, which says this is a default match option unless a participant selects another option.

    Community Bank System Inc., DeWitt, N.Y., offers company stock as a match, according to the most recent 11-K statement for a 401(k) plan that has 25.6% of assets in company stock. A company representative did not respond to a request for comment.

    The Pension Protection Act has helped reduce the impact of company stock in DC plans by requiring sponsors to allow participants to choose a cash match rather than company stock after three years of service, said David Stinnett, the Malvern, Pa.-based principal and head of the Vanguard Strategic Retirement Consulting Group.

    Vanguard considers as best practices for investment diversification placing restrictions on accounts holding company stock and offering a cash match vs. a company-stock match, he said.

    Vanguard research also shows how plan design can affect company stock. Among Vanguard clients last year, the average company stock allocation was 27% in plans that offered a company stock option and also used company stock as a match, said a June report. For plans offering a company stock option but making a cash match, the average allocation to company stock was 9%.

    The pitfalls of company stock

    Some defined contribution plans with more than 20% of assets invested in company stock saw bigger than average losses in 2020. Assets are in millions as of Dec. 31.


    Company

    U.S. DC assets

    % of company stock

    YTD return as of March 31

    YTD return as of July 31

    Costco Wholesale

    $20,530

    41.2%

    -3.0%

    10.75%

    Exxon Mobil

    $19,430

    39.1%

    -45.6%

    -39.70%

    Chevron

    $18,780

    34.9%

    -39.9%

    -30.35%

    Parker-Hannifin

    $5,290

    29.1%

    -37.0%

    -13.07%

    McDonald's

    $3,600

    43.3%

    -16.3%

    -1.69%

    Cerner

    $2,720

    29.1%

    -14.2%

    -5.37%

    Cintas

    $2,120

    35.7%

    -35.6%

    12.19%

    Enbridge

    $1,190

    32.7%

    -26.9%

    -19.54%

    J.B. Hunt Transport

    $886

    27.7%

    -21.0%

    10.81%

    ONEOK

    $693

    28.9%

    -71.2%

    -63.12%

    Community Bank Sys.

    $348

    25.6%

    -17.1%

    -20.74%

    S&P 500

    --

    --

    -20.0%

    1.25%

    Sources: SEC filings, Bloomberg LP

    Related Articles
    Heavy stock holdings in DC plans declining
    Lawsuits show risk to managers in offering their own products
    Despite pandemic, retirement saving stays steady – study
    Recommended for You
    Comfortable retirement still on track for most Americans despite pandemic – survey
    Comfortable retirement still on track for most Americans despite pandemic – survey
    Pentegra joins with EPIC to offer 3(16) fiduciary services
    Pentegra joins with EPIC to offer 3(16) fiduciary services
    Smaller DC plans place greater focus on improving financial wellness efforts
    Smaller DC plans place greater focus on improving financial wellness efforts
    Top questions for institutional investors
    Sponsored Content: Top questions for institutional investors
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center