For Coca-Cola Co.'s defined contribution plan participants, things don't always go better with Coke.
Participants in the Atlanta-based company's $2.4 billion defined contribution plan have seen the paper value of their employer stock holdings drop by 19%, or $419 million.
That's because 92% of the plan's assets are in company stock; as of Nov. 10, Coke stock had dropped to 721/16, down from its 52-week high of 8815/16.
Similarly, at Rockwell International Corp., Pittsburgh, 66% of the $4.5 billion defined contribution plan's assets are in company stock, which on Nov. 10 was down 25% from its 52-week-high of 615/8 That means employees suffered a paper loss of $743 million on their holdings.
The stock of PPG Industries Inc., also in Pittsburgh, was down 24% from its 52-week-high of 765/8 and 67% of its $2.6 billion defined contribution plan assets are in PPG stock. This resulted in a paper loss of $425 million.
Participants in the $1.8 billion defined contribution plan of Kimberly-Clark Corp., Dallas, experienced a paper loss of $233 million; 77% of plan assets are in company stock that, as of Nov. 10, was down 17% from its 52-week high 597/16.
It is mainly large companies that match their employee contributions with company stock and offer defined contribution plan participants the choice of investing in company stock. Of the 626 corporate funds in Pensions & Investments' 1997 survey of the nation's 1,000 largest employee benefit plans, 108 sponsoring com- panies have more than 50% of their defined contribution plan assets in their own stock and 46 have more than 30% of the assets of their defined contribution plans in company stock.
Officials at most of these companies don't want to say too much about the effect of the stock market volatility on their defined contribution plans' company stock holdings.
Coca-Cola spokesman Bill Hensel said, "Coke stock has been a tremendous performer. Employees who work here and have worked here see a lot of benefits in owning company stock."
Scott Mechling, manager-pension assets management, Rockwell International, would say only that, "We're trying to get the Rockwell stock (price) back up."
At Kimberly-Clark, A.J. Sinha, manager of finance, said: "We are not encouraging or discouraging employees (to buy company stock).
"We have quite a wide range of choice for our employees," with several mutual funds offered in the 401(k) plan portion of its defined contribution plan.
Although the stock market dip that began in the summer seems to have been a short-lived correction, the issue of what would happen if a long-term bear market took hold is important.
Participants in defined contribution plans who own a lot of company stock "could be in double jeopardy" in a long-term bear market, said Stacy Schaus, principal at Hewitt Associates, Lincolnshire, Ill. If a recession accompanied the bear market, employees "could lose their (jobs) and if the company stock they're so heavily invested in is down, and they need to dip into those assets, which would incur a tax penalty," the financial consequences could be serious.
"All in all, it's not a pretty picture," she added.
Not everyone agrees. "We would view a sustained bear market as a buying opportunity for our stock," said Neil Darling, manager of investment analysis at Chevron Corp., San Francisco. In the company's $7.4 billion defined contribution plans -- which include profit-sharing, leveraged ESOP and 401(k) plans -- 85% of the assets are in Chevron stock, which is down 9% from its 52-week-high of 903/16.
Indeed, at many companies that include their stock as a choice in the 401(k) plan portion of their defined contribution plans, employees often buy more when the price goes down.
"Employees seem to buy more of their company's stock when the market goes down because they think it's cheap," even as they sell other stocks, said Shlomo Benartzi, an accounting professor at the University of California-Los Angeles. As a consequence, "they end up with a less diversified portfolio."
There is an unusual phenomenon, according to Mr. Benartzi, in which company employees "don't think of their company's stock the way they think of other stocks. They seem to think it can't go down. Company stock is perceived as safer than a diversified portfolio of lots of stocks."
Many employees who think this way end up with portfolios that are invested 40% in company stock, 30% in other stocks and 30% in bonds, Mr. Benartzi said.
Studies showing 401(k) plan participants with their assets split 60-40 between stocks and bonds are misleading, he said.
In reality, plans without company stock generally are invested 50-50 in stocks and bonds. Those with company stock generally have a 70% equity and 30% bond exposure.
The large company stock exposure concerns Mr. Benartzi, who worries employees may end up with a large exposure to a single security in the midst of a bear market.
The recent market drop probably will cause changes in 401(k) plans that are heavily invested in company stock, said Adele Heller, a consultant with BARRA RogersCasey, Darien, Conn.
"Diversification is becoming important again," she said.
In addition, in instances where a company is matching 401(k) plan contributions with company stock, she expects efforts will be made to allow employees to move their assets out of the company stock within a year of its contribution. Current restrictions vary. Some companies allow employees to move their matching stock to other investments right away, but many require them to wait from one to three years or until they reach a certain age, generally beginning at age 45, according to Ms. Heller.
"I think there is already pressure on companies to make their matching contributions in cash," said Ms. Heller, who expects more companies to do start doing it.
However, there is also the belief that investment in company stock -- especially with large companies -- should be looked on as a long-term investment and not evaluated in terms of short-term stock market volatility.
"These are long-term plans and if company stock is issued it is because of a long-term asset allocation strategy," said David Wray, executive director of the Profit Sharing/401(k) Council of America, Chicago.
"A company stock decision should never be made in light of market volatility. These are long-term programs and (investors) should never respond to market volatility."
Mr. Wray pointed out it is mainly large companies that have large holdings of company stock in their 401(k) plans. "These large companies have had an enormously successful track record. (At most companies) where company stock is concentrated (in 401(k) plans) the participants have done very well," he said.
The 401(k) Council advocates the use of company stock in 401(k) plans "in the right circumstances," Mr. Wray said. "I think it's very much an individual decision. In some companies it makes sense."