As many plan sponsors seek to reduce the role of company stock in participants’ accounts, research shows that these efforts are paying off.
More plans and more participants are moving away from an undiversified asset whose stock-market vulnerability is exacerbated when participants are heavily invested in it, according to Vanguard Group Inc.
Among DC client plans offering company stock, 86% had allocations at 20% or below in 2019 vs. 75% in 2011, said a Vanguard report published in June.
The 20% figure, which Vanguard calls a “concentrated position,” also reflects Internal Revenue Service guidance that any allocation above 20% for a single company or industry means “your savings may not be properly diversified.” The IRS guidance document covers portions of the Pension Protection Act and is aimed at participants and sponsors.
Also last year, 12% of plans had company stock allocations of 21% to 40% of total DC assets compared to 17% of plans in 2011, the Vanguard report said. Two percent of plans had 41% or more of DC assets in company stock vs. 8% in 2011.
The Vanguard report doesn’t identify companies, but Pensions & Investments found some examples of concentrated positions by reviewing 11-K statements for 2019, the latest data available.
For example, some energy companies had high allocations, including ExxonMobil Corp., Irving, Texas (39.1%); Chevron Corp., San Ramon, Calif. (34.9%); Enbridge Inc., Calgary, Alberta (32.7%) and ONEOK Inc., Tulsa, Okla. (28.9%). So did McDonald’s Corp., Chicago (43.3%).
Representatives from these companies either declined to comment or didn’t respond to requests for comment.
All of the companies reviewed by P&I sustained stock price declines by March — some dramatically — from year-end 2019. From this nadir of the coronavirus’ stock market impact, stocks have rebounded, but many hadn’t returned to last year’s levels as of July 31.