The increasingly dominant vehicle for private, employer-sponsored retirement savings for the last thirty years has been the defined-contribution plan or 401(k)s. In the latest Retirement Outlook, American Enterprise Institute (AEI) scholar Alex Brill, a former senior economist for the House Ways and Means Committee, warns that despite the Enron debacle and the well-known saying "don't put all your eggs in one basket," some employees' 401(k)s are still at risk from being too invested in a single stock -- their own company's stock.
Among the highlights:
- With the future of Social Security uncertain, retirees may have to increasingly rely on 401(k) plans for retirement security.
- As of 2009, 28 percent of employees who had company stock available for their 401(k) retirement plans had invested over 20 percent of their funds in their company's stock. Five percent of these employees had 401(k) plans that consisted of over 80 percent company stock.
- This lack of diversification exposes employees to serious risk if companies should fail, as Enron did.
- Policies guiding 401(k) diversification would address two related issues: the risk from being overly invested in one's employer, and the risk from being too invested in any other single stock.
- The most feasible option for addressing company stock in retirement accounts seems to be prohibiting employers from providing company stock to employees inside a 401(k) plan. It is unlikely that this would cause employers to be less generous with their plans or to cancel their plans.
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