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.