US - Despite a shift in market practice since the collapse of Enron erased much of the savings stored in the pension accounts of its employees, defined contribution plan participants at large corporations still have almost 23% of their assets invested in their own company's securities, new research from Greenwich Associates has revealed.
“Even after the reductions in the use of company stock for contributions in the years since the Enron scandal, the consultants at Greenwich Associates contend that US companies have further to go in their practices and educating employees so the levels of stock held in corporate DC plans are reduced,” said consultant Chris McNickle.
Greenwich acknowledged that many US companies are putting an end to the use of shares of their own stock to make contributions to their employee retirement programmes.
According to its research, the proportion of companies with total pension assets over US$250m making their DC matching contributions in company stock fell from more than 30% in 2003 to less than 20% in 2004. At the same time, the proportion of large companies making matching contributions in either cash or stock tripled from 3% to 9%, indicating that some companies that previously offered only stock contributions are now offering a cash option.
Fewer than 5% of companies with less than US$250m in pension assets make their matching contributions in company stock.
“Companies should be lauded for changing the funding of their matching contributions from shares to cash,” McNickle said. “But the fact that nearly one quarter or assets in the typical DC plan are still held in an individual security remains a cause for concern and participants should not be encouraged to over invest in their own company – or any other single stock.”
ERISA limits DB plans, which hold on average less than 2% of assets in its own company stock, to 10% by law.
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