Including company stock among the investments in your 401(k) plan can be powerful. It gives employees a voice in the firm’s direction, pride of ownership, and a direct correlation between their job and company performance. At the same time, employees should understand how to use company stock wisely as a 401(k) plan investment.
A few widely publicized corporate bankruptcies in the early 2000’s taught lessons about over-investing in company stock. Federal law limits the amount of employer stock in defined benefit plans to 10%, but has no corresponding limit for 401(k) plans. In spite of past lessons, some plans hold a significant percentage of assets in their own company’s stock. According to the Brookings Institute, Sherwin Williams has 62% of their 401(k) plan assets in employer stock, with Colgate Palmolive close behind at 56%. Companies with substantial employer stock holdings in their retirement plans may be risking participants’ retirements if the business takes a downturn, as has occurred for General Electric. They were recently removed from the Dow Jones Industrial Average as business results slipped.
If you haven’t done so lately, it could be advisable to examine the percentage of assets invested in company stock in your own plan. And make it the subject of employee investment education. By doing so, you can help employees make informed decisions about company stock investments, and at the same time, maintain the benefits of employee ownership.
Click here to read this op-ed from the Brookings Institute for more information.