"Companies offer employees a greater sense of ownership" by offering the taxable version of company stock, said Mike Shamrell, vice president of thought leadership in workplace investing.
"They are looking for ways to leverage for hiring and retention," said Mr. Shamrell, adding that the research was "driven by our clients."
The taxable employee stock purchase plans aren't governed by ERISA. Employees can participate via payroll deduction, and purchases are made according to a pre-determined schedule. Employers set the allowable contributions that can be a percentage of pay or a specific dollar amount. Some companies may offer the stock at a discount to the market price, Mr. Shamrell said.
Company stock in 401(k) plans has declined over the years, a function of best practices emphasizing greater investment menu diversification, limitations by some employers on how much company stock a participant may hold in a 401(k) account and the desire by companies to reduce the risk of stock-drop lawsuits aimed at their 401(k) plans. By the end of the second quarter, Fidelity said 518 of its 401(k) plan clients offered company stock. The largest percentage of clients offering company stock have 25,000 or more employees.
The report showed a declining trend of employees holding company stock in their 401(k) plan if company stock was offered — 26% in 2023 vs. 39% in 2018 and 48% in 2013. All figures represents first-quarter results.
The percentage of 401(k) contributions to company stock if offered also declined during this extended period — 5% in 2023 vs. 8% in 2018 and 13% in 2013. All figures represent first-quarter results.
Also during this period, for plans offering company stock, the percentage of company stock assets in 401(k) plans sank to 9% in the first quarter of 2023 compared with 12% in the first quarter of 2018 and 17% in the first quarter of 2013.
The report also identified employers' efforts to reduce the risk of company stock in 401(k) plans based on a June 2023 survey of Fidelity record-kept plans.
Among 218 responses by corporate DC plans, 24% placed a company-stock limit on participants' accounts. The most common limits are 20% or 25%.
Also, among 163 responses by corporate DC clients, Fidelity found that 36% limit the amount of contributions employees can make to company stock in their 401(k) plans. The most common limits on contributions are 20% or 25%.