But an over-allocation to company stock may not be a big concern for investors much longer. More companies are removing their own stock as an investment option in 401(k) plans. A new survey by Towers Watson reveals that 26% of plan sponsors have already initiated or are considering whether they should eliminate company stock from their retirement plans.
It's backlash to last summer’s Fifth Third Supreme Court decision. The ruling held that company stock is subject to the same fiduciary standard as other investments, so employers are effectively exposed to greater risk simply by offering their company stock in 401(k) plans.
"Unfortunately, a lot of employers are being sued," says Robyn Credico, national leader of defined contribution consulting at Towers Watson. "So, for many years now, employers have been thinking of taking [company stock] out [of plans]. And it's a challenging decision."
Fully 76% of employers surveyed by Towers Watson are reviewing their methods for monitoring company stock.
"I think a lot of plan sponsors are scared," says David Blanchett, head of retirement research at Morningstar, in a video report. He says offering company stock in a 401(k) plan puts a great deal of responsibility on the shoulders of the employer sponsoring the retirement plan. "So, if I am a plan sponsor, I don't want to have that risk in my 401(k) of all my participants buying the company stock and then it performing poorly," Blanchett says.