Treasury Cautions on Company Stock Caps

Limits, such as those proposed by a handful of Congressional pension reform bills, could see a large amount of stock being dumped onto the market at the same time, Treasury officials cautioned.

Also, if employers react to such limits by ending or cutting back their matching contributions, that could dampen worker participation in employer retirement plans, the Treasury Department said.

Business groups have opposed such limits because companies get tax breaks for making matching contributions in company stock.

One of the key themes running through the ongoing Enron scandal has been allegations from workers that they were improperly pressured into buying company stock in their 401(k) plans even when the share price was plummeting. Enron, a once-giant Houston energy trader, sought federal bankruptcy protection in December after its financial collapse.

That left many employees with blocks of nearly worthless Enron stock. According to the Treasury report, 20,795 participants in Enron’s 401(k) plan had about 63% of their assets invested in company stock at the end of 2000.

The Treasury Department’s report was based on data from the Labor Department, the Employee Benefits Research Institute, the Investment Company Institute and from discussions with 401(k) plan administrators.