PLANSPONSOR - August/September 2021 - 12

UPFRONT
Company Stock Is Down But Not Out
Sandy Pappa, principal consultant at
Buck Global LLC, says company stock can
benefit both the business offering it and the
employees. " The value of company stock is
to get employees to be part owners and give
them an incentive to work harder to make
the company succeed, " Pappa notes.
" Firms may offer the stock in their
401(k) plan for tax reasons, " she says.
" Some companies may freeze, eliminate
or restrict company stock-but I still think
the largest plan sponsors [will continue to]
maintain it, particularly [the Fortune 500]
companies I do consulting with. "
And, despite lawsuits alleging an
STOCK DROP LAWSUITS, plus a lack
of interest among retirement plan participants
in their company's stock offerings,
have resulted in fewer retirement plan
sponsors making the provision available
to their participants, industry experts say.
As reported in Vanguard's " How
America Saves 2021, " that recordkeeper's
plans that actively offer company stock
declined from 10% in 2011 to 8% in
2020. As of year-end 2020, only 3% of all
Vanguard participants held concentrated
company stock positions-i.e., 20% or
more-down from 9% at year-end 2011.
That is not to say that benefits executives
are uninterested in offering the
stock-just unenthusiastic, says Sue
Walton, a Capital Group retirement strategist.
" We've seen a steady decline [in
employers offering it] as an investment
option, " and participants are less likely to
choose it when available, she says.
Sponsors have realized there should
be diversification away from a single stock,
from a plan design perspective, she says.
" Thus, fewer and fewer firms use company
stock as a match. This trend is consistent
with 401(k) plans being used as the actual,
or main, retirement vehicle, versus 20
years ago when they were considered a
supplemental savings plan. "
While companies might view offering
company stock to be an attractive incentive,
doing so might work best in a pension plan
or other institutional wrapper managed
by an experienced fiduciary, Walton says.
For 401(k)s or other workplace retirement
plans, company stock is " not the best
choice, from an investment standpoint. "
Despite less interest, some sponsors
continue to make it available-e.g.,
through a brokerage window.
12 PLANSPONSOR.COM August - September 2021 Art by Giulio Bonasera
overconcentration of participant assets in
company stock, it is an additional equity
investment that can diversify participants'
portfolios, she says. Participants
are more aware of their need to diversify
their retirement plan investments and, for
this reason, she says, she believes some
participants will always be interested in
company stock. To ensure diversification,
regulators require a notice to participants
once they reach a certain allocation to
company stock, telling them they might
need more diversification.
In addition, to ensure they are
meeting fiduciary responsibilities for
investments, " some [of my clients] have
hired independent outside fiduciaries to
oversee the availability of their company
stock and report back to the board whether
the stock continues to be an appropriate
investment, " Pappa says.
Precautions Needed
Benefits consultants say sponsors that
offer company stock should erect guardrails
to keep participants from becoming,
as one source put it, " cowboys. "
One of Buck's clients benchmarks how
its peers use company stock in their plan,
Pappa says. Others limit the exposure each
participant can have to their company's
stock, or to any specific stock; some limit
the size of a purchase. -Lee Barney
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PLANSPONSOR - August/September 2021

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