Compliance October 3, 2003

Senate Study Says Large Firms Weighted Down with Employer Stock

March 22, 2002 (PLANSPONSOR.com) - A new study by the US Senate's Democratic Policy Committee says Enron had plenty of company with employees heavily invested in their employer's stock as part of their 401(k) plan.
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The Senate study said 401(k) plans at a third of the top 50 US companies held even more company stock than Enron, which had 57.7% of Enron stock in its 401(k), the study said.

“This lack of diversification could prove devastating for tens of thousands of employees who rely on the stability of their 401(k) plans for a secure retirement,” the study report concluded.

The Democratic Policy Committee (DPC) study also noted that:

  • 55% of the top 50 corporations’ plan assets were at least 30% invested in company stock
  • 38% of the corporations’ plan assets were at least 50% invested in company stock
  • and 17% of the corporations’ plan assets were at least 70% invested in company stock

In fact, according to the study nearly a third (30%) of the plan assets had a higher concentration of company stock than the 57.7% of the assets in the Enron plan did in 2001 (57.7%).

One of the aspects of the Enron debacle is that employees lost million of retirement dollars after they said the company improperly pressured them into buying Enron stock in their 401(k) and restricted them from selling shares even as their price plummeted.

Some of the US companies in the Senate study were much higher in terms of the amount of plan assets in company stock:

  • Procter & Gamble: 94.7%
  • Sherwin-Williams: 91.6%
  • Abbott Laboratories: 90.2%.

Senator Byron Dorgan, (D-North Dakota), who released the study, said it was “some cause for alarm” that, on average, 40% of Fortune 50 corporations’ 401(k) assets are invested in their own company stock.

Dorgan said eight other Fortune 50 firms’ plans exceeded 75% of assets in company stock. .

“If you have a bankruptcy in one of these companies, what would the consequences of that be for the employees? Obviously pretty dire,’ Dorgan told a news conference.

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