Reader Responses June 1, 2003

SURVEY SAYS: Employer Stock Limits?

January 18, 2002 - With apologies to those of you who are weary of the Enron-centricity of the media's coverage of late (goodness knows, Enron seems to be a 'target rich' environment), there appears to be an emerging sentiment to save participants from themselves - even in situations where there is no blackout - and no required investment in employer stock.

Reported by

Nevin E. Adams

This week, Enron aside, we asked readers, ‘Should participants be limited in how much they can invest in company stock – even if they have the ability to change that investment at any time?’

Clearly the topic struck a chord among readers – on both sides of the issue, and everywhere in between. And just as clearly, it’s a complicated issue. ‘I’ve seen people put all their money in company stock; I appreciate their trust but question their logic.’, said one reader. Numerically, nearly 65% of this week’s respondents weighed in opposing limits on participants. However, a sizeable number of those also opposed the kind of limits that Enron imposed on workers – forcing the employer match to be made, and to remain in employer stock. One reader offered the following perspective, ‘If there are any holding requirements imposed on the company stock, then there should be a limit on the amount of stock a participant can own.’ Another reader suggested, ‘I feel employees should be limited in the amount they invest in company stock, unless they sign a disclosure stating they are educated enough to know what risks they are taking in doing so.’

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Despite our admonition to set Enron aside, it was hard for many readers to separate the issue from the company whose behaviors put it in the headlines. But most saw Enron as an oddity, for example, ‘Enron went down because they had crooks as Officers and Fools as Auditors. Take away all the Enron Officers’ assets, put the crooks in jail, set limits on how many consecutive years an Accounting firm can audit a Fortune 500 company….’

‘There are two schools of
thought on this issue.
(1) The first says if you limit
participants and the stock
goes up, you are going to
get sued for limiting their
ability to make money.
(2) The second says if you
don’t limit participants and
the stock goes down, you
are going to get sued for not
keeping them from shooting
themselves in the head.’

One reader articulated the concern of many regarding the future ‘security’ of employer matches, by noting, ‘I don’t think a limit on employer stock is necessary as long as it is fully disclosed. I don’t like mandatory contributions to employer stock. I’d rather not have the employer match in employer stock but it’s better than not getting a match at all.

Readers supporting some kind of limit may have the best evidence of all – participant inertia. But as one reader noted, ‘I honestly believe that the “greed factor” was the cause of this Enron disaster for participants. And now that they know they were wrong, it is someone’s fault, not their own for their lack of diversification. The only time the Enron participants wanted to move out of the stock is when it was on the way down…’

But Enron’s example may have an impact that transcends anything the media or lawmakers can dream up. ‘I often receive calls from my sales force (who tend to be the most risky investors of all my participants),complaining that they cannot invest more than 20% of their deferral to company stock,’ noted one reader, who continued ‘…after the long speech of “eggs in one basket” – they still say it is unfair. Since Enron, I haven’t received a call like that.’

And then there is this week’s Editor’s Choice: ‘There are two schools of thought on this issue. (1) The first says if you limit participants and the stock goes up, you are going to get sued for limiting their ability to make money. (2) The second says if you don’t limit participants and the stock goes down, you are going to get sued for not keeping them from shooting themselves in the head.’

Additional VERBATIMS :

‘Either impose a limit – or require investor-employees to sign a nasty waiver with the potential risks writ large and simply, upfront.’

‘NO. Individuals have to be responsible for themselves. We don’t need a village to manage their investments.’

My thoughts on “limiting” company stock options: Would you be asking if the stock were still worth $80.00 a share? Seems like investors are well enough “protected” and advised both legally and informational. At some point individuals bear the burden, but in this case it appears AA and Enron were not righteous with the information. Who’s going to pay? I have my guess………

‘I am pleased at all the ENRON/401(k) press because I hope it will wake up some idiot plan sponsors who lack a functional fiduciary cranium.’

‘It does not matter what investment options, trading limitations, level of employee education or lack thereof, or the % match, if any, that a Sponsor provides to its Participants. The fact is that people in this country are incredibly litigious and of a victim mentality. They will always sue their employers, for any reason whatsoever, and retiring with not enough money is going to become one of the best reasons of all!’

Thanks to EVERYONE who participated in our survey!

The question was: Should participants be limited in how much they can invest in company stock - even if they have the ability to change that investment at any time?

THE VERBATIMS

I feel very strongly that the participant should never be 100% in company stock, and every education program sends this message loud and clear to the participant. Participants simply become greedy as the stock prices go up and because they have no diversification in their portfolio get hammered when the stock goes down. Most companies do place a limit on the
percentage of company stock a participant is permitted to have in their 401(k) account, but this is less of a problem when the participant has the ability to change and move out of the company stock at any time.

I honestly believe that the "greed factor" was the cause of this Enron disaster for participants. And now that they know they were wrong, it is someone's fault, not their own for their lack of diversification. The only time the Enron participants wanted to move out of the stock is when it was on the way down, which is normal, however, had they had 10% of Enron versus 100% this would have been far less of a disaster for the participants.

Don't agree with matches that must be in employer stock, and maybe participants with more than 50% of an account balance in employer stock should periodically get some written materials describing the risks of equities in general and under-diversified equities in particular, but I am opposed to anyone telling me what I can or can't invest in. Education and information is the answer, not paternalism or this kind of participant regulation.

I believe each of us should have the right to make our own investment selections when it involves our future. Why should the government have a say in where we invest our money? I wonder of the "so-called" billions of $$s that were lost (Enron) what was the actual amount of contributions by the employees? We all (should) realize there is "risk" in stock investments.

There should be limits for investments in 401(k) plans of Company stock, even though people can change at any time. I liken this situation to seatbelts. We all know that seatbelts save lives. However, it was not until states began to legislate the use of seatbelts that wide spread use became the norm.

Better to regulate pretzel consumption...

My opinion is that participants should not be limited on how much they can invest in company stock. I do not believe that companies should be allowed to make their matching contribution in "restricted" company stock.

The problem is that all participants are not "savvy" on how to invest their plans. If they understood the concept of diversification, they would not have lost so much money. Enron executives should be held liable for leading their employees to believe that the company was in better shape than it was.

If there are any holding requirements imposed on the company stock, then there should be a limit on the amount of stock a participant can own. Having a large percentage of an account balance invested in employer stock is not suitable for the vast majority of participants. Unfortunately, most 401k participants look solely at the recent performance of an investment and make no effort to determine the suitability of an investment.

I feel that it should be the employee's decision, BUT, there needs to be plenty of education on the risk involved. Also, I think that there needs to be a way to prevent management from knowing exactly which employee owns, buys or sells company stock so there isn't a chance of employees being pressured to hold the stock. The Enron problem appears to be more a case of outright lies & manipulation by management than a case of employees not making good decisions. As stated, if the stock had gone the other way there wouldn't be any complaints. If anyone should be bailing the employees out it would be management & maybe Andersen. Maybe the controls need to be on management to keep them from dumping large holdings in a short time frame.
The money in my 401k is MY money and I don't want someone telling me what I can or cannot buy. I do expect accurate information and honesty on the part of my employer. Hopefully, any bad performance will be the result of my decisions and not the result of bad faith in my company.

No, there should not be limits on investment elections - company stock or anything else

There should be limits in place. Employees tend to remember that many people have made millions investing in company stock during the good times, but for some reason, they don't remember what happens when the good times grind to a halt.

I do not believe that we need Federal regulations to "protect" investors. It would be helpful possibly to limit how long company stock as a match has to be held, but not a limit on the percentage that I personally can invest in.

In my opinion plans should not prohibit company stock in any manner. Education regarding company stock investing should be mandated and the responsibility transferred to the employee. Changes to restrict company stock investing by law will no doubt become effective about the time the market rises and participants will be shut out of the gains. Our laws are always reactionary once an evil has been committed!

If we are to have participant direction of investments in retirement plans, then the direction of such investments must be the responsibility of the participant. EDUCATION and one on one financial advice should be put into play with plan participants.

Enron was WRONG to put limits on the employees, provide them with erroneous information and create a black out at the time the stock was tanking. That doesn't pass the "smell" test for this plan.

Companies should definitely limit stock purchases for Plan Participants under the age of 16.

Absolutely. I don't believe that the average participant understands the potential risks and volatility of a single stock investment. The allegiance and strong beliefs that an employee has regarding the future success of a company should be encouraged and nurtured but not with a huge investment in company stock.

Yes! Absolutely! Participants should be limited as to the amount they invest in company stock. I often receive calls from my sales force (who tend to be the most risky investors of all my participants) complaining that they cannot invest more than 20% of their deferral to company stock - after the long speech of "eggs in one basket" - they still say it is unfair. Since Enron, I haven't received a call like that.

Some participants will never be happy. If you limit them and their company's stock is doing well - they'll sue because you wouldn't let them buy more. No limits and when it tanks, they'll sue because you didn't tell them they shouldn't put all of their eggs in one basket. All plan sponsor's can do is educate and then keep a record showing what education took place so they are confident when asked to explain it to the judge.

No, People need to take responsibility for their actions!

No limits on % in employer stock. Our country is built on personal freedoms. However, participants need to do what is unfortunately becoming less prevalent in our society today, take responsibility for their own actions if it blows up on them.

Caveat Emptor.

Caveat Venditator.

Well this is a difficult question for me since our company will not allow us to purchase company stock.

I have heard both sides. When the market was going bonkers before March of 2000, all I heard about was people getting wealthy on their high tech company stock and I was jealous. Now we have a company that has gone broke over night with employees losing their life savings and we want to push laws to protect us from ourselves.

I have a question back. How much communication was given to these employees about diversification? How much knowledge did they have about the risk, specifically as it related to the business ERON was in? Obviously we do know that the management of the company was misleading in his comments about the condition of the company and its future. There was also a failure by the auditors to catch and report problems with the Financials.

To me this is a case of a breakdown in a company that did not play by the rules that govern, and management should pay the price and so should the auditors. But let us not change all the rules and hurt the public as a whole.

Rather than place limits on individual options, it may be appropriate to limit the amount the COMPANY can require an individual to invest in its own stock because of the tacit duress an employee may feel from management for selecting alternative investment options, or because the Company, by its own volition, provides options that are obviously less attractive.

Conversely, if the company and the individual receive tax advantages from 401(k) plans, then perhaps it is appropriate that the government be permitted to establish maximum exposure limits like ERISA does on defined benefit plans.

Since sponsors can provide investment options that seem to provide alternative options, but are actually devised to "steer" employees to Company stock, some oversight may be justified. That's just my opinion. I could be wrong.

Attempts to protect people from themselves are doomed to failure. There are still ESOP's around where participants have an abundance of Employer Stock. Enron went down because they had crooks as Officers and Fools as Auditors. Take away all the Enron Officers' assets, put the crooks in jail, set limits on how many consecutive years an Accounting firm can audit a Fortune 500 company. Why is it that attention is focused on Employer stock when the problem is greedy corporate officers and collusion by their foolish auditors?

There are two schools of thought on this issue.

1. The first says if you limit participants and the stock goes up, you are going to get sued for limiting their ability to make money.

2. The second says if you don't limit participants and the stock goes down, you are going to get sued for not keeping them from shooting themselves in the head.

This is a losing proposition for the employer. Either they should not offer their stock in their retirement plan or they should expect to get sued at some point in the company's life. Until we get rid of this mentality that individuals are not responsible for their own actions and also get rid of the whiplash attorneys who will take any case to make a buck, we are destined to see this recurring scenario.

Even though it's a forced investment decision and may cause some a loss in a profitable investment, I think it would save more than it would harm by setting a maximum percentage for one stock in a 401(k) plan. (If a person thought that particular stock was a winner, they could invest their personal dollars in an IRA or their own portfolio to capture the presumed returns.)

Yes, participants SHOULD be limited. Easy for me to say -- we're not-for-profit. I'm a firm believer that employees should take full responsibility but we know they don't and most courts don't make them.

If employees have the ability to change their investments within 401(k) plans from/to company stock in their employer, there need not be any additional protection. Adequate protection is already present.

In answering this question, I think it makes sense to consider why ERISA exists -- in part, at least, to provide guidelines for the protection of pension assets. The article in yesterday's WSJ stated that ERISA limits the amount of company stock that can be held in a DB plan to 10%. Shouldn't individual employees be offered the same protection in their 401-K accounts? If not, is it fair to assume that employees as a group understand what investing from a "prudent man/woman" perspective means? I think that our government has been extremely imprudent in its laws providing regulation and oversight of 401-K plans, and, unfortunately, employees have been paying for this mistake. Hopefully this debacle will provide some incentive to fix the problem (if members of Congress can even move beyond their current finger-pointing and point the finger at themselves).

No - we should treat adults like adults and stop depending on the nanny state to protect everyone. We don't need additional oversight from more regulators.

Perhaps Mr. Franklin said it best:

They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - Benjamin Franklin, Historical Review of Pennsylvania, 1759.

No. Historically many employees have accumulated substantial wealth by buying their company stock in the market. Programs available today that allow employees to purchase their company's stock without brokerage commissions provide even a better opportunity to accumulate wealth. As always the employee needs to do their homework.

Yes. Restrictions should be put on even voluntary purchases of company stock in 401(k) plans. Plan fiduciaries should be required to protect participants by requiring some degree of diversification in account assets.

No. They should not be limited in how much they can invest in company stock if they are free to make other investment choices.

If you risk it all you ride with the wave.

But if that is your only investment option then that should probably not be allowed because there would appear to be a conflict of interest between the employee and the employer where the employer may be using the plan with only its company stock as an option as a source of cheaper capital.

If this were a supplemental plan then it would be ok (e.g., ESOP).

But if it is the only employer plan then it should not be allowed. Even though 404c is optional and an employer does not elect that option each participant should have the ability to diversify their retirement assets.

These plans should be win-win-win for sponsor, participant and service provider/investment firm respectively.

One of my tax professors has a saying "pigs get greedy, hogs get slaughtered." When any of the aforementioned parties becomes a hog they deserve to get slaughtered.

I think some limit would be appropriate, but the danger is in the administration of it! If your other investments do not perform, but the company stock does, you would be required to sell the company stock because it makes up too much of your account. Try to program that into the 401k Administrators' systems!

I don't think that plan participants should be limited in the amount of their accounts they can invest in company stock. That of course is on the assumption that the education is adequate to help them understand the risk they're taking on. It is also on the assumption that a plan participant still won't seek to hold someone else (the company, the benefits manager, the recordkeeper, any presumably deep pocket) responsible for their voluntarily assumed risk -- and that a jury won't agree. I've seen people put all their money in company stock; I appreciate their trust but question their logic.

I don't think that employees should be very restricted in their investment decisions, including their decision on how much of their retirement account they would like invested in company stock. As with all retirement plan issues, education is very important. Employees need to know about diversification and the risks of investing heavily in company stock.

I personally don't agree with firms paying matches with company stock because it forces employees to take additional action to stay diversified. However, when this kind of match is done, it is critical that employees have the option to trade out of that stock.

I think as long as there is "freedom of choice" there should be no limit on the amount of ANY one stock that the individual wishes to choose. Isn't "Freedom" what this country is all about? This, of course would include the freedom to make a fool of yourself.

Yes, employees should be limited on what they can invest in their company stock. My employer went public in 1993 and it was determined at that time that participants would be limited to a maximum of 50% of their total 401(k) account in company stock. Participants sometimes need to be saved from themselves. They have an emotional tie to the company stock as if it was an indicator of their loyalty to their employer and their job. They look at their company stock as a separate investment instead of understanding that it is one investment of many choices and is part of their total retirement account. It's been over 8 years since the IPO and I am still hearing uneducated comments regarding the company stock account. For example, why were company stock shares sold when I took out a loan? I just wanted to take a loan from my 401(k), not touch my stock!!

No - participants should not be limited, IF THEY DO HAVE THE ABILITY TO CHANGE THAT INVESTMENT AT ANY TIME. But more education for plan holders is required to counter company hoopla about the stock. Enron stock had already fallen by some 60% from its high by the time the freeze occurred when administrators were changed. If participants have the ability to get out but don't, they're like the frog on the stove in cold water who does not jump out as the heat is applied and he is cooked. Where 401(k) plans include self-directed stock trading, there should also be a provision for stop-loss orders to be placed into effect by the plan participant.

Stock used for employer matching contributions cannot be sold until vested.

Employers should not be allowed to require mandatory purchases of company stock for employee savings or retirement accounts

Participants should not be limited in the amount they choose to invest in their employer's stock as long as they can sell the stock at any time.

Let the buyer beware!!! I believe we already go to far in compensating those who do not take personal responsibility for their actions. If an investor/employee wants to invest in their company, then they should share in both the upside and downside risk.

Well, yes. But then again, no. Where will it stop? Will employers have to monitor each employee's account to make sure the investments are diversified? And by whose standards? I thought employers didn't want to have investment responsibility - isn't that what defined contribution is all about? If we are truly concerned about the retirement income security for our employees, we should be reinvigorating defined benefit plans. The question of Enron is a different one altogether - I can have sympathy for the workers, but only to a certain extent. Personal responsibility, greed, denial, yes, they all played a part; and as for the executives selling their stock and imposing an ill-timed blackout on the underlings - a pox on them!

Yes. As you said - we have to save participants from themselves. It will always come back on us in the end for "allowing" our employees to do wrong. On the other side of that coin, we do need to assist those who just don't have enough working knowledge to make the right decisions. For some, the dollar signs of a rising stock cast a shadow over their common sense.

If we don't limit their ability to invest in company stock, we'll have another Enron set of employees expecting to be protected from themselves.

Participants should not be prevented from making their own investment decisions. They must accept the responsibility for their decisions and not expect someone to come to their rescue if their investments have been found lacking. Analysts should be held accountable for not doing their jobs (or at least provided with accounting coursework) during a financial shell game.

On your survey question - I think that as long as a participant has the ability to change their investment at any time, it's hard to justify a hard limit. At a certain point, people have to be allowed to be stupid - we can't legislate intelligence in investing.

I think that the tragedy of the Enron situation is more that by design the plan placed severe limitations on participants' ability to diversify away from company stock.

Thomas Jefferson said something along the lines of "He who would give up liberty for security will lose both and deserves neither." If we require limits on participants' ability to invest in company stock, we are taking another step towards protecting people from themselves. We have already started down that slippery slope of giving up total control of our lives to others who would love to control it for us, and this is just another minor example.

If people want to invest 100% of their 401(k) plan assets in their company, let them. The last time I checked there was no one at the casino doors limiting the amount to bet, or even giving out gambling risk/return analyses, or providing historical returns on playing Blackjack. Although I am sure there are government bureaucrats who would drool at the opportunity.

Employers should still be able to make contributions to employees' accounts in the form of stock (hey, it's their money). Having an employer stock fund that employees can invest their OWN contributions in should not be allowed. Sure it's supposed to be the, "land of the free and the home of the brave," but when it comes to employees controlling their investments it too often turns out to be the, "land of the greedy and the home of the ignorant!"

As an investment consultant, when structuring 401(k) investment options for our clients, we recommend only 4 investment funds: Equity (very diversified with 7+ managers, international, large, mid, and small cap), Bond, Balanced (a fixed blend of the Equity and Bond options), and a short-term money fund. We've been doing this for 10 years, flying in the face of the trend towards more and more investment options, and with tremendous success. Having a multitude of options usually just maximizes fees and minimizes performance. It is unfortunate that the coming of age of 401(k) plans coincided with one of the greatest bull markets this country has ever seen. As the markets went nowhere but up, participants (and sponsors) were convinced that they were fund picking geniuses (a misconception fund companies were all to eager to foster).

In today's environment I think we need some limits, but I would rather fix the house over the results caused by the sick house.

If society is going to hold employers accountable for participants' decisions then absolutely there should be some limit established for company stock or any single investment. If we insist on making other people answerable for our own decisions then by all means let's dumb down the entire system to the absolute least of us. After all, those theories worked out so well in the former USSR.

If we want to allow the individual and not the employer to be responsible for their own actions then there is no need for limits. Assume the person is saving outside of a company plan as well. Then it would make sense that they may have investments that are currently taxable invested conservatively, and the tax deferred instruments invested aggressively, thus making a balanced portfolio in total. An investor shouldn't have to diversify each investment. If that were true then we need to hold some stocks and a few bonds in a checking account as well. It does have to be the participant's choice. If a company gives or matches with company stock the participant should be able to sell it within the plan and even buy a competitor's stock if other individual stocks are allowed.

Sorry for the two answers but I think you need to know what environment you're in before you can answer it accurately. Please pick the answer that fit's the environment you intend.

Employees should neither be required to invest, nor prohibited from investing, in their own companies, stocks. In my wife's case the Stock Specific risk is offset by other investments outside of that IRA. I do agree that one should not keep " all their eggs in one basket " but I do not believe big government should control their investment decisions. Government should investigate fraud and misrepresentation to keep the market transparent. Risk/reward decisions, even foolish ones, should be in the domain of the investor. I am in favor of unbiased investor education.

Yes, if an employer wants the protection of IRC 404(c) I believe that plan participants should be limited to directing no more that 10% of their account balance (re-balanced at least quarterly) to employer securities. If the employer is making their contribution in employer securities purchased on the open market then they should adhere to this 10% limit. If the employer contribution is being made with authorized, but unissued, stock then immediately after the allocation/deposit to the participant's account the 10% limit on the account balance should be applied and any overage liquidated.

Let us promote "Functional Fiduciary Craniums" but without government intervention.

I loathe government regulation -- lawmakers and government agencies can generally be counted on to take a good or noble idea and really foul it up (as anyone knows who has dealt with qualified retirement plans for any length of time). However, it is heartbreaking to see what the ENRON debacle (as well as others) has cost its employees, especially in their retirement savings. It also makes for dramatic and compelling press (witness the Today show just this morning). Should participants be limited in how much they can invest in company stock, even if they have the ability to change that investment at any time? In other words, should the onus be on plan sponsors to save participants from themselves, even in situations where there is no blackout and no required investment in employer stock? Yes, but I hope it will come about without government regulation. As noted in one of your first reports by one of your readers, a few high profile prison terms would go a long way towards influencing plan sponsors. Already, it seems highly unlikely that any plan sponsor with a brain (and admittedly there are some who lack a functional fiduciary cranium) would add company stock as an investment option in a retirement plan in the post-Enron era. And it seems likely that plans with required investment in employer stock will go the way of the dodo bird, ENRON and other extinct entities. And yes, it is probably a good idea for plans with company stock to limit how much participants can invest in company stock -- say 10% or 20%. But let plan sponsors do this on their own, not as a result of laws or regulations.

I am pleased at all the ENRON/401(k) press because I hope it will wake up some idiot plan sponsors who lack a functional fiduciary cranium. My wife works for a plan whose match is funded annually in company stock -- participants cannot sell it. Sure, it is great that they have a plan at all and bother to make a matching contribution -- they don't have to - but my wife could lose a huge portion of her life savings through no fault of her own. I don't think that her employer is ENRON, but neither did the employees of ENRON, did they?

Yes there should be a limit for the company's protection; the employee should be able to get in or out of the investment at will. As with many people these days, some employees will always be victims not taking responsibility for their own decisions. If their stock is up, they are smart investors, as soon as it takes a dive they were misled, given bad advice, etc.

Any company using company stock as matching contribution or where company stock is an allowed investment with no restriction on % would be required to invest (for example) 10% of the plan's assets in special government bonds (a la war bonds). The interest rate on these bonds would fluctuate with the T-Bond rate. DOL actuaries would determine the required funding of a pool (a real one, unlike the SS Trust Fund) to cover 40% of the loss to participants based on bankruptcy, etc. The pool would not guarantee funding for poor market conditions or fraud. The federal government would be empowered to seize assets in receivership to cover losses. To the extent these assets did not cover 40% of the loss, the pool would make that 40% whole. The effect is to guarantee each participant in a plan funded with company stock a minimum floor of 50% of their pre-bankruptcy assets. While this scheme may increase the cost of senior debt somewhat, it is the price a company would have to pay to preserve the tax advantage of matching with stock. Plans where participants can immediately reallocate company stock or where they can place limit orders to protect downside risk would not be eligible.

Within a few years (assuming a more normal market recovery) the asset pool would be 110% funded and no additional contributions need be made from the bonds sold. There are a great many more details to this plan, but the net effect is to provide a limit on participant risk as a result of poor company management. That should make participants more comfortable about participation post Enron. Additionally, it provides a weekly source of revenue through the sale of government securities that are stable. Instead of prohibitive insurance premiums, the plan would be funded with invested contribution dollars and has the side benefit of at least diversifying each participant account into 10% fixed guaranteed securities. Some methodology would need to be developed to determine the causation of catastrophic loss and culpability of company management in the collapse. I'd be interested in discussing this further. It and other concepts should be suggested to the DOL and executive branch in an effort to promulgate meaningful legislation rather than punitive actions that do not benefit participants. It is clearly in the government's best interest to support some form of safety net. Otherwise, as is the case with Enron participants, they ultimately become the problem of entitlement programs.

It does not matter what investment options, trading limitations, level of employee education or lack thereof, or the % match, if any, that a Sponsor provides to its Participants. The fact is that people in this country are incredibly litigious and of a victim mentality. They will always sue their employers, for any reason whatsoever, and retiring with not enough money is going to become one of the best reasons of all!

No, but additional education and perhaps even targeted mailings to those heavily invested in company stock must be done regularly. If you limit the amount or percentage of assets that can be invested in company stock, you have denied the participants the ability to self-direct their funds. It would be preferable in my opinion to just ban company stock from 401k plans altogether.

Yes, participants should be limited in how much they can invest in their company's stock. However, to avoid placing an administrative burden on plan sponsors and administrators, the limitation should only focus on limiting the maximum future investment elections and fund transfer percentages allowable for the stock fund. No forced rebalancing of the participant's account should be required in the event that, as a result of the appreciation of the stock price, the participant's balance in the fund exceeds a certain percentage of their entire plan balance.

NO. Individuals have to be responsible for themselves. We don't need a village to manage their investments.

As long as employees have the option to change from company stock to other mandated types of investments, no limit is necessary. In Microsoft's big climb during the 90's, I'll bet participants would fight to the death if they were limited in their company stock plan purchases.

No, participants should not be limited in how much they can invest in company stock. It would be un-American. Bill Gates did not become a billionaire through diversification of investments.

In spite of the dreadful results of the ENRON scandal, the government should not try to restrict participants' trading within their 401(k) accounts.

If a company wants to make its company matching in the form of company stock, that should be their choice. The participant can weight his portfolio (which perhaps includes assets in other group plans, in individual IRAs, and also his spouse's savings, real estate, individual stocks, etc.) so that his entire holdings are invested according to his personal goals. A federal law specifying limits on holding company stock cannot possibly encompass a participant's entire holdings - inside and outside of the plan.

Further, it would be unfair, and an administrative headache. For example, assume a new law limits my company-stock holding to 50% of my total account holdings, and the value of the stock starts to climb, and purely because of appreciation my company stock grows to where it represents more than 50% of my account - - - Will the administrator have to liquidate my shares to cash daily to maintain the 50% max? - - - What if there is no market for the small trading lots this could create? - - - Who will pay the trading commission? - - - AND this could also happen because, for example, I invest the remainder of my assets in high-tech, international or some other volatile fund... while my company stock remains static in value, the remainder could take a nosedive, yet I would be FORCED to sell my company stock. Obviously, not a good law.

What should be done? Let plan sponsors work it out, influenced by competition and participants. Wise plan sponsors will allow participants a diversified array of investments, in addition to company stock. Further, they will allow those who are late in their careers (say, age 55 or over) to diversify their company match accounts out of company stock. These are reasonable measures that are being taken already (some companies did his years ago) and will continue to be done as our employees and competitors influence what we plan sponsors do. That's the free-market way. While ERISA is needful and good, it does not need to be expanded for this.

ENRON is an example of corporate misconduct, and probably crime. If management and their auditors had obeyed the law, this 401(k) issue would not be in the headlines now. If participants had diversified their personal portfolios prior to the 11th hour, they would not be crying foul. Everyone with a grain of sense knows the "all-your-eggs-in-one-basket" axiom. I suspect (although I do not know) that participants stayed over-allocated to their company stock because it had created a lot of wealth for them in the past and they probably ignored written and verbal advice over the years about proper allocation. Certainly, however, if their decisions were based on the company's fraudulent financial reporting, that would involve crime. We have enough laws. Let the government enforce the ones we have. We should not knee-jerk into more laws and regulations, designed to help participants, but (a.) will not stop management bent on criminal behavior, and (b.) will be costly and harmful to everybody else.

Yes, they should be limited in their exposure even if they can change the investment at any time.
Employees want to be loyal and believe in their employer, which can result in taking to great a risk by concentrating the investments. We are almost always slow to react to bad news, especially if it can directly affect us. The changes come too late.

Regarding yesterday's question, I would say companies should limit the investment in company stock. I say this not because I believe in taking responsibility for the foolhardiness of others, but because most companies will want to limit the blame that can be placed at their door regarding the retirements of their employees if there is no such restriction. I believe the government will step in as well not because they have the best interests of the employees at heart (which would lead Congress to allow full freedom of choice in investing pursuant to the dictates of a free market) but because the elected officials relish in looking like the saviors, and they really don't want to have to pay more in retirement benefits for my generation which they already cannot afford.

As long as the employees have the capability of selling their investment at any time, they should not be limited to how much is held in company stock. I personally have balances in (2) 401(k) plans' different investment options - both offer and have company stock that I invest a portion in. My current employer matches with their stock I can't touch it until age 50. But, I put all of my own monies into 13 different funds. DIVERSIFICATION is the KEY. Investing in company stock is good for MORALE while you are working for your company. Thank God I was never lied to regarding Profits. It all comes down to due diligence with each investor, everyone is different. A lot of investors get burned outside of company matches in retirement plans. Greed is not a good thing! Thanks for giving me the time to share my thoughts.

No! Let them make their own decision.

I don't think there should be any limits on an employee's decision to invest in employer stock. However, I do believe there should be legislation regarding employer requirements to invest in their own stock. Specifically, I don't think an employer should be allowed to make their matching contribution in employer stock if the employee is not allowed to sell the stock and invest it wherever they would like.

No, participants should not be limited if they can change at anytime, nor should they be required to invest in company stock. The more limits or requirements, the greater the fiduciary liability. At least that's the way it should be.

I am not sure that limiting the investment in ER stock is needed, but I do think that the employees should have the ability to change that investment on a regular basis. I am looking at this issue in relationship to participant directed investment menus that are striving to be 404(c) compliant. If ER stock is part of a participant directed investment menu that is 404(c) compliant and the rules for the ER stock (%, ability to change, etc., information) are consistent with the other investment options, then the ER stock is just one of the investment options that the participants can consider.

I do have more of an issue when the rules for the ER stock are different than other plan investments. I have been a participant in plans where the ER match was made in ER stock only, and participant investment direction did not extend to the ER match. That was too restrictive and in down markets could be financially devastating, especially if the participant is near to retirement age.

Absolutely not. Participants should make their own decisions regarding how they invest their money. Regulations that limit potential loss also have the effect of limiting potential gain.

I feel employees should be limited in the amount they invest in company stock, unless they sign a disclosure stating they are educated enough to know what risks they are taking in doing so. They do need to take some responsibility for themselves.

I also feel that companies should not be allowed to require 100% of company match money to be in company stock (as is the case at my company). I would like to see that capped at 20 -25% max.

Since ERISA allows defined benefit pension plans to invest only 10% of plan assets in company stock, I think the same rule should apply to 401(k) plans. For a lot of people, the (k) has replaced the DB plan and it is really not prudent for participants to have so much of their net worth wrapped up in one company. However, this type of change might create a disincentive for employers to match contributions and plans which have no match tend to have lower participation rates. Perhaps a rule that says no employee contributions can go into company stock...

No, although in participant self-directed plans with a completely wide-open choice of investments (virtually anything available at Schwab), like ours, I think plan sponsors have a greater responsibility to make sure participants receive investment education that would cover diversifying and the risks in investing everything in one stock, be it their company's or another's.

Freedom is a state where one takes risks and reaps rewards. Why should we settle for less than freedom? Big Brother does not know all, is not all wise, all seeing and need not be omnipresent in our lives. Live Free or Die!

THEY SHOULD BE LIMITED TO 20%, AND BE ABLE TO SELL AT ANY TIME.

Yes. Participants should be limited in how much of their 401(k) they can invest in employer stock because, in many cases, they will not see their company's stock plunge coming. We require our employees to retain their company stock given as the match but do not allow them to invest any of their own deferred income in company stock. We will probably change our plans to allow sale of company stock if the employee reaches a certain age or years of service.

Only if the participant is under the age of 13.

I believe that one of the only ways that Company Stock might work in our "lawsuit happy" world is to institute some form of a " legal safe harbor" provision for the employer. The employer informs the employee in writing (which is signed by the employee and copies retained by both parties) that the employee may invest in Company Stock, that she may sell the Company Stock at any time (no quiet periods).

There should be no restriction on the amount that can be invested as long as the investment is not required and can be changed at any time.

Absolutely, it would be irresponsible to do otherwise. Look at all the 50-60 something's that worked at Digital who retired with their pension tied up in company stock. Now all their spouses are working and not enjoying retirement with their mate.

As long as they have the freedom to sell or change investments I don't think there should be limits on how much stock can be owned.

All participants should not be limited in their investments merely because some have been risky in their asset allocation. I'm sure the ex-Enron employees would not have complained if their Enron stock investments had given them significant returns. Like it or not, we are all responsible for our financial decisions. Participants are obligated to educate themselves re: 401(k) investing---or simply select the Stable Value/Money Market fund and be satisfied with the 2-5% returns. The tenant of diversity in investing will always prevail.

I do not believe it is necessary to limit company stock to a mandated maximum if employees have full ability to change at any time.

Yes, limits should be imposed.

Never should the government interfere with an individual's right to determine his future. Even if his choices are poor. If I believed in the company, I would want the ability to invest in that company to the degree that I felt appropriate.

Absolutely. What employee allows themselves to invest 100% of everything they own in one stock? That is the number one no-no in this business for god's sake.....

I don't think we should limit where the participants can invest their money, because no matter how proactive that approach may be, it will be seen as a "take away" and produce negative feelings about employers forcing limits onto where employees can invest. Truly they need education on where to invest all their money, as despite flooding participants with information, I see questionable investment moves all the time. For example, there will always be people months away from retirement who have all their eggs in the most aggressive basket and the youngest investors with their funds in the money market.

But of course, to the sour participant, bad results are never the investor's fault - it's the fault of the plan sponsor who made those horrible, rotten choices available.

Regarding the survey question, I think that there should be a limit on how much an employee can invest in company stock. It builds in some degree of diversification by making them choose more than one option. It also can limit the self-inflicted damage caused by the temperamental investor (buy more when its up, sell everything when its down, etc.) And it also keeps everyone honest.

There should not be limits to employee choice in their 401k plan. We took out virtually all retention requirements for company stock back in 1994, at the same time that we markedly broadened investment choice in the plan, both because we believed them to be requirements in order to qualify for the 404(c) safe harbor from liability.

I also note that many DC savings plans imbed an Employee Stock Ownership Plan (ESOP), which is a creation of our Congress to encourage stock ownership by employees of publicly-traded companies. Given an ESOP, shouldn't there be an expectation of measurable company stock ownership?

Finally, many companies having 401k plans also have DB or DC pension plan, which on a stand-alone basis probably provides adequate if not attractive retirement income security. In those cases, why shouldn't employees be free to accumulate ownership in their employer in a tax effective manner -- again, not because they are forced to but because they choose to?

If participants have the option to move monies at any time and to fully elect the later disposition and initial placement of their funds, they should not be protected.

Limit company stock investment to no more than 10% or 20%. I felt this was a good idea well before ENRON.

No. Employees should be able to choose among all of the fund choices. We allow them to invest all of their money in a vehicle that barely keeps them ahead of the rate of inflation and take those risks, we should not legislate investment choice.

Yes, there should be limits for participants in their investments in company stock. Even if they can change daily, they don't or their greed prohibits them from understanding the risks. I think companies would also want to limit their participants' exposure, exactly because of the Enron type of situation. I think 50% should be a recommended limit but with no ERISA or regulatory enforcement action behind it.

Either impose a limit - or require investor-employees to sign a nasty waiver with the potential risks writ large and simply, upfront. An employer-provider team with access to 20th-century technology can also organize to have periodic memos (perhaps with a required waiver update attached) to those whose (k) portfolio drifts higher than a pre-assigned limit. (Unfortunately, so many providers seem to operate archaic systems that prevent this type of auto-notification.)

In response to your survey.....enough!! Lord knows we are all adults. If you can't make adult decisions without the government hovering over you like a demented babysitter, then don't get into the stock market. Natural selection worked for millions of years in survival of the fittest. It's about time we went back to allowing adults to make mistakes and learn by them.

Personally, as a general rule I do not believe that a plan participant should be limited in how much they can invest. I disagree with Kathleen Connell's recommendation of 10%. That number seems too arbitrary. If I were a Microsoft employee in the 1980's and 1990's, then I would have wanted the opportunity to own shares in my company. A lot of shares.

Given my objection, I do believe that a majority of plan participants are not fully informed or capable to assess and minimize the risks in their retirement portfolios. As such, it might be wise to consider some type of limits. But 10% is far too low.

I believe that Employee Contributions should have wide latitude. Employer Contributions in Company Stock should not be locked down, or restricted from trading. I would agree with any Plan Sponsor who issued Company Stock to its employees in their respective Retirement Plan Account and did not restrict them from holding or selling their positions.

In a free market society, no limits are needed. It's still "buyer beware."

As long as their plan offers other investment options, Social Darwinism dictates whether they should be capped at how much to invest in company stock.

Yes, I believe there should be limits. Possibly 20% maximum. Most blue collar workers, and quite frankly the majority of white collar workers, don't understand the importance of asset allocation and diversification.

Default investments in these plans should be a maximum of 10-20% company stock. Then, if the employee opted to change the investment to a higher percentage of company stock, it would be the employee's choice, and would relieve the employer of the responsibility for that choice.

There should be no limit on what anybody invests in anything - unless of course we assume that money belongs to the state and we only use it at the state's discretion. Back in the USSR? (Sorry Paul).

Since it doesn't look like we will ever have an environment where people actually have to accept their own decisions for 401(k) Plan investment, then there should be a cap on Company Stock investment (this begs the question of whether or not to block Company Stock that could theoretically be acquired in a Brokerage Window).

Funds held in employee stock (or any other investment in a 401(k) plan) may be prudent for that individual investor in relationship to other investments held by that employee. The Plan would have no way of knowing if the investment represented 100% or 1% of the employee's total investment portfolio. I would vote for no limitation.

I feel that employees should be limited to a maximum of 25% of their total 401k investments in company stock.