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401(k) Participants’ Investment in Company Stock Continued at Historically Low Levels

A report released by EBRI (Employee Benefit Research Institute) and the Investment Company Institute (ICI) looked at 401(k) plans and found that employee holdings of company stock in 401(k) plans continued to remain low.[1] Participants are placing fewer assets into company stock compared to the high water mark set in 1999 when company stock accounted for 19% of assets. The 2015 levels were less than 7%, approximately the same as in 2012, 2013 and 2014. This trend to avoid company stock became more pronounced after the collapse of Enron in 2001, when “participant’s awareness of the need to diversify may have increased and some plan sponsors may have changed plan design.”

Chart of 401(k) Plan Average Asset Allocations (%) in Company Stock 2007-2015Other factors, such as the regulations put forth by the Pension Protection Act of 2006, may have contributed to the decline as well. The PPA provisions both limited the length of time participants could be required to hold company stock contributed to their accounts by their employer, and also required quarterly statements that must include a notice highlighting the importance of diversification.

Additionally, the study showed that of those plans that did offer company stock; the take rate among newly hired was decreasing. Approximately one quarter of the recently hired participants in such plans held company stock while 43% of the total eligible population held company stock. With memories of the market meltdown still fresh, 401(k) Plan participants may be making a fundamental shift away from company stock as an investment. They may prefer to hold the entire market through target date funds which take away company-specific risk.

The report used participant data through 2015 for this analysis which was based on an EBRI/ICI database of over 26 million participants. While the EBRI/ICI analysis cited several reasons for the decline in overall company stock allocation, many industry experts also believe trends such as the adoption of target date funds, auto-enrollment features, and litigation fears have contributed to the current market environment.

[1] Jack VanDerhei, Sarah Holden, Luis Alonso, and Steven Bass. “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015.” EBRI Issue Brief, no. 426, and ICI Research Perspective, Vol. 23, no. 6 (August 2017).
[2] Note that the percentages in the above chart are dollar-weighted averages and not all participants are offered this investment option.