Company Stock in 401(k) Plans Drops

According to the authoritative data compiled annually by the Employee Benefit Research Institute and the Investment Company Institute, company stock held by employees in 401(k) plans continued to decline in 2005, standing now at just 13% of total 401(k) assets, down from 19% in 1996 and 16% in 2002. Employees in their 20s are about one-third less likely to hold company stock than employees in their 50s, and the percentage of recently hired employees investing in company stock has dropped from 60.5% in 1996 to 46.3% in 2005. Only 11% of new participants now hold more than 50% of their assets in company stock, compared to 23.8% (the peak) in 1997. Concerns about the problems employees suffered at Enron and other companies whose rapid declines in stock value decimated the account values of hundreds of thousands of participants, greater opportunities for employees to diversify out of company stock in 401(k) plans, and more education on the importance of diversification all have played a role. The new Pension Protection Act, which requires companies to provide diversification options in all 401(k) plans and KSOPs in public companies, will further accelerate the decline.