Bigger Not Always Better With Company Stock

January 30, 2002 ( - Larger plans are more likely to have company stock, more participant investment in company stock - and more limits on that investment, according to a new report.

The report, Company Stock in 401(k) Plans, was released yesterday by the Employee Benefit Research Institute (EBRI).  

The aggregate percentage of assets in 401(k) plans in company stock has held steady at about 19% over the past five years, according to EBRI.  Where company stock is offered either as a match or an employee investment option, 32% of those assets are in company stock if the plan sponsor does not offer a GIC/stable value option – and 28% if it does.

However, where employer matching contributions are made in company stock, a full third of employee-directed deferrals are in company stock – but just 22% is so invested when company stock is available, but not a mandatory investment for those monies.

The study itself was based on a fax survey of members of the International Society of Certified Employee Benefit Specialists (ISCEBS).  From a base of some 3,346 members, 375 usable responses comprised the final survey results.

Stocking Up

Nearly half (48%) of survey respondents reported company stock as an investment option in their plan, with a much higher percentage among plans with more than 5,000 employees (73%).  Less than a third (32%) of plans with less than 5,000 workers had the option.

Among those plans with a company stock option, the average investment in company stock was:

  • 39% – less than 10%
  • 42% – 10% to 50% – a significant range
  • 18% – more than 50% of the plan invested in company stock

“Big” Deal

Large plans were more likely to have larger concentrations in company stock.

Some 43% of those plans with a company stock option said that employer contributions were required to be so invested – a requirement more prevalent among large employers than smaller ones (49% versus 38%).

Of those plans imposing restrictions on company stock, over half (60%) reported a restriction based on a specified age and/or service requirement.  That compares to 27% that said restrictions applied throughout a participant’s investment in the plan and just 13% that reported no such restrictions.

Just 14% of survey respondents have imposed a limit on the percentage of company stock a participant may hold in their 401(k).


Nearly three-quarters (74%) of survey respondents have undergone a blackout, with 39% reporting a blackout of anywhere from two weeks to a month.  Additionally,

  • 27% – noted a day to two weeks blackout
  • 26% – noted a period of a month to two months

Just 3% noted no blackout, or one that occurred overnight or over a weekend.

Not surprisingly, larger plans tended to command shorter outages than small plans.  Furthermore, the existence of company stock appeared to have no impact on the length of the blackout.

The vast majority (79%) of survey respondents viewed blackouts as a ‘necessary by-product of the conversion’ – but just 72% saw it as necessary when company stock was part of the plan.

Enron Aware

When it comes to Enron, 74% say most employees at their employer/client are aware of the Enron situation.  Among those:

  • 43% – employees don’t think that Enron applies to them
  • 27% – say that employees question why employers are allowed to require investment in company stock
  • 22% – say that employees are reviewing their asset allocation as a result
  • 6% – say employees are wondering why company stock is permitted as an investment option
  • 2% – say employees don’t care

Defined “Benefit”

While this may also be a large plan phenomenon, plans that have a defined benefit option were more likely to also offer a company stock choice in their 401(k) plan, by a factor of 60%, compared to just 35% of those with no pension plan. 

Employers that have a defined benefit plan are also more likely to require an investment in employer stock (50% versus 33%), and are also more likely to have a heavier investment concentration in company stock, and more likely to impose restrictions on selling that investment.