Fewer retirement plans offer employer stock and fewer plan participants hold concentrated company stock positions in their retirement savings accounts, finds a new analysis from Vanguard.

Many companies that still offer company stock in 401(k)s or other defined contribution (DC) plans now impose restrictions on the option, Vanguard notes in “Company stock in defined contribution plans: An update.” 

Vanguard presents its analysis as an update of prior research on the changing nature of company stock in employer-sponsored retirement plans. For the research, Vanguard aggregated participant-level account balances so as to more accurately quantify the effect of company stock on the participant’s entire DC account wealth with their current plan sponsor.

This is necessary because many large employers, who are more likely to offer company stock, are also more likely to sponsor multiple DC plans. While participants at one company might have a 401(k) account with no company stock and a stand-alone ESOP, another company may offer participants a 401(k)/ESOP plan with company stock and a stand-alone profit-sharing plan with no company stock.

Accounting for this complexity, Vanguard finds the fraction of plan sponsors offering company stock experienced a 27% relative decline between December 2005 and June 2014. As the researchers note, the fraction of participants offered or investing in company stock has declined by even larger amounts. This is partly because company stock plans tend to be large, with a median participant population of 2,704, versus 236 for non-company-stock plans. Among employers actively offering company stock, 52% of actively contributing participants had an investment in company stock, Vanguard says. Overall, just 6% of sponsors are actively offering company stock to 28% of active plan participants.

Importantly, Vanguard says the percentage of participants with a concentrated stock position (greater than 20% of their total account balance) dropped by about half between 2005 and 2011.

The analysis finds one driving reason for the decline in employer stock concentration was plan design changes made by sponsors. During the time period studied about one-third of the gross starting number of company stock funds were closed to new money and/or eliminated from the plan. Closing a company stock fund to new money is often a precursor to liquidating and reinvesting assets in the company stock fund, Vanguard notes. 

Another development in company stock plans, driven by fiduciary concerns, has been the introduction of rules designed to mitigate concentrated single-stock positions. As of June 2014, about 6 in 10 organizations offering company stock either restricted contributions and/or exchanges into company stock. This represents another shift: Three years ago, 50% of organizations had company stock restrictions.

Vanguard researchers suggest plan sponsor interest in evaluating employer stock offerings has surged since June in response to the Dudenhoeffer case, in which the U.S. Supreme Court ruled fiduciaries of employee stock ownership plans (ESOPs) are not entitled to any special presumption of prudence under the Employee Retirement Income Security Act (ERISA).

In its sample, participants in plans with access to company stock are more likely to be male, Vanguard explains. The median equity allocation of participants in plans with company stock was higher by five percentage points—86% in plans with company stock versus 81% for plans not offering company stock.

Other findings show company stock plans tend to be more generous and well-funded than non-company-stock plans. Median account balances are higher in company stock plans, Vanguard says, as are median employee and employer contributions.

One reason for the greater generosity of company stock plans is the prevalence of employer matching or other employer contributions. Vanguard says all of the plans it analyzed that offered employer stock as an investment option offer matching contributions, compared with 83% for all Vanguard plans. Further, slightly more than half of organizations with active company stock funds make both matching and other employer contributions to participant accounts—compared with just one-third of all Vanguard plans.

The analysis of company stock offerings is based on Vanguard recordkeeping data as of June 2014, including 1,497 sponsors with 1,901 distinct DC plans. Vanguard notes that the sample has one important caveat: “Our data set is subject to survivorship bias. We are only able to examine plans and participants that have survived through June 2014. We do not observe plans and participants associated with employers that went bankrupt over the period, that were acquired by another entity (whether due to financial distress or other reasons), or that left our recordkeeping services business. For example, if a firm went bankrupt during the financial crisis of 2008–2009 and its stock became worthless, and it liquidated the plan or left our recordkeeping service business, it would not appear in our sample.”

The full report is here.