Large Employers Looking to Change Company Stock Setup

April 22, 2002 ( - More than a third (38%) of large employers are making matching contributions in company stock, and the vast majority (86%) impose some type of restriction - but that could be changing, according to a new survey by Hewitt Associates.

The survey of nearly 300 companies, with an average of 22,000 workers, found that nearly two-thirds (62%) of those with current company stock restrictions have eased those restrictions or are very or somewhat likely to ease them this year.  The Enron debacle has focused participant and plan sponsor concerns on the issue of company stock and the ability to diversify that investment.  Most of the bills pending in Washington currently would call for some level of change in employee ability to change those investments.

Employee Action

Nearly all (92%) of employers offering a company stock fund allow employees to invest in that fund, and a like number (90%) say they will continue to allow employees to invest employee contributions in company stock.  Just 5% say they are considering imposing a limit on employee contributions to a company stock option, while 14% are not yet certain if they will impose a limit.

The Hewitt survey also found that a large majority (69%) of companies offering company stock as a 401(k) investment option plan to provide employees with some form of special communication on the topic – and 70% said they will communicate this year on how to save during times of market volatility.

Contribution Paces

Survey respondents are also paying attention to the broader issue of employer matching contributions.  However, the vast majority (92%) say they will not – or are unlikely to – reduce the employer matching contribution, while another 5% say they are not yet certain.  More than one in 10 has already increased their matching contribution in 2002, according to Hewitt.

Employee saving is also on employer’s agendas, with 71% planning to increase the maximum allowable before-tax contributions in their 401(k) plans – most typically from 15% to 50%, according to the survey.  That increase was made feasible thanks to the increased contribution deductibility provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

Priority Shifts

Not surprisingly, change is afoot for many plan sponsors, with nearly a quarter (24%) of those surveyed reporting a change in plan priorities from a year ago.  The top three priorities are now:

  • 32% – improving employee participation in the plans
  • 26% – improving employee understanding of the plan through communication efforts
  • 21% – encouraging participants to diversify assets more optimally

In addition, the Hewitt survey found:

  • 21% of employers provide online investment advice
  • 27% of employers are very or somewhat likely to provide online advice this year
  • 83% of plans say they will provide a special EGTRRA communication to participants this year
  • 36% will communicate specifically about section 529 tuition savings plans