Employees Beware: Company-Stock 401(k) Plans Not Wise Investments

NEW YORK – For workers, the lesson of Enron's collapse is supposed to be that they shouldn't put all their retirement eggs in one basket of stock. But that is a lesson some of the nation's biggest companies and their employees have all but ignored.

Major corporations like Procter & Gamble, Coca-Cola and McDonald's have packed their 401(k) plans with far larger proportions of their own stock than Enron did, according to a recent survey. In P&G's case, as much as 95 percent of all the assets in its retirement savings plan are in its own stock.

Many employees choose to put their retirement contributions into company stock. And companies often make their matching contributions in stock, on the condition that it remain untouched for years.

On average, 43 percent of the savings in retirement plans run by the nation's largest employers consist of their own stock, according to the Profit Sharing/401(k) Council of America, which represents the firms.

But at some companies, the number is much, much higher, according to research by an industry newsletter, DC Plan Investing.

At Sherwin-Williams Co., the Cleveland-based paint maker, nearly 92 percent of all money in the retirement plan is in company stock. At pharmaceutical giant Pfizer Inc., the figure is more than 86 percent, and at McDonald's, more than 74 percent.

"To have a plan where participants are investing more than 90 percent of all assets in [any one] stock is extremely high," said Ted Benna, a Pennsylvania retirement plan consultant generally regarded as one of the inventors of the 401(k) concept.

But to have the money all in the company's own stock is "even more alarming. I mean, come on, you've got to be real. There's no stock that warrants that level of ownership, I don't care who they are."

To be sure, the circumstances were unique at Enron, where the company's stock price plunged just as the company locked its workers out of making any changes in their 401(k) savings because of a switch in the plan's administrators.

But the list of other companies with especially high concentrations of their own stock in retirement savings programs include several that have seen their share price drop in recent years.

At Textron Inc., 70 percent of employees' retirement savings are in company stock that, in the past three years, has plummeted from $98 to less than $40 a share.

At Coke, more than 81 percent of the 401(k) is in company stock that has fallen from a high of more than $70 to less than $45.

At P&G, the balance in retirement accounts relies on stock that fell from a high of about $117 a share to as low as $56 before recovering to around $80 recently.

Bob Gustafson, 55, of Loveland, Ohio, retired from P&G in June. He does not blame the company for the huge drop in his savings.

"The fact that I was 100 percent in P&G when it went down was my own fault," he said. "I had opportunities to do some diversifying, but I didn't think the alternatives were as good because P&G had been doing so great."

As was the case at Enron, very large portions of the holdings at P&G and many other businesses are the result of decisions by workers who believe in their company, have seen its stock price soar and bet their futures on it.

The concentration of company stock is notably higher at companies that funnel their stock into 401(k)s on top of the shares bought by employees.

At Enron, nearly 58 percent of assets were in company stock. At P&G the figure is 94.7 percent — the highest proportion of the 219 companies surveyed, according to DC Plan Investing.

P&G contributes stock to retirement accounts of even those employees who make no contribution of their own. It disputes the DC Plan Investing figure, saying that 92 percent of assets in its entire retirement plan are in company stock. Its 401(k), which is part of a broader retirement plan, is 87 percent P&G stock, the company said.

Some businesses require workers to park a portion of their own contributions in company stock, though that practice may be becoming less common.

Companies contend that stock programs are designed to serve the interests of the company and the employees.

"It certainly links the company and the employee together because we want employees to be owners of the company," said Martha Depenbrock, a spokeswoman for P&G.

Experts say that it may be difficult to reshape 401(k) plans heavy with company stock because they often appeal to both employer and employee.

"Do you want to tell employees they can't invest in company stock if they want to?" said Jack VanDerhei, a Temple University professor who is an expert on 401(k) plans. As for employers, many "say if they can't put in company stock they won't make any contributions. If you ask anybody would you rather have a contribution in company stock or no contribution at all, I think that's a no-brainer."