Participants Putting Less Stock in Company Stock

A new report from Vanguard finds a diminishing presence for company stock in DC plans.

Vanguard analyzed a set of 1,152 plan sponsors that were continuously on their record keeping platform between December 2005 and June 2014. Over that period, the fraction of plan sponsors offering company stock fell from 11% to 8%, a relative decline of 27%, while the fraction of participants offered or investing in company stock declined by even larger amounts (40% offered in 2005, 29% in June 2014).

Significantly, the percentage of participants with a concentrated stock position (i.e., greater than 20% of their total account balance) dropped by about half — from 17% in 2005 to 8% in 2014. However, at least for the plans in this consistent sample, much of that decline seems to have taken place prior to 2009.

The report notes that one important reason for the decline in stock concentration was plan design changes made by sponsors: Between December 2005 and June 2014, about one-third of company stock funds were closed to new money and/or eliminated from the plan.

More Generous Plans?

Company stock plans tend to be more generous and well-funded than non-company-stock plans, and median account balances are higher in them, as are median employee and employer contributions. Of course all of the company stock plans in the sampling make an employer contribution of some type, compared with 83% of all Vanguard plans. In fact, slightly more than half of organizations with active company stock funds make both matching and other employer contributions to participant accounts, compared with one-third of all Vanguard plans. 

On the other hand, a quarter of organizations actively offering company stock direct an employer contribution to company stock, and 1 in 12 directs both a matching and another employer contribution to company stock. Just three years ago, 37% of organizations directed an employer contribution to company stock.

When an organization directs any employer contributions to company stock, 56% of participants hold a concentrated position greater than 20%. In contrast, when the organization makes employer contributions in cash, and leaves investment decisions in company stock at the discretion of the participant, only 15% of participants hold a concentrated position.

That said, about one-quarter of sponsors with active company stock funds continue to direct an employer contribution to company stock. Vanguard notes that this design decision has the strongest relationship with participant company stock holdings. 

Restricted Access

As of June 2014, about 6 in 10 organizations offering company stock either restricted contributions and/or exchanges into company stock. Three years ago, 50% of organizations had company stock restrictions. In 2005, two-thirds (66%) of participants used company stock if available. By June 2014, that had slipped to 53%.

For organizations seeking to mitigate the risks arising from concentrated stock positions, the report offers two strategies to consider:

  • make employer contributions “in cash” (i.e., at the participant’s direction); and
  • impose restrictions on the amount participants can contribute or exchange into a company stock fund.

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