Some employers may have learned a lesson from the collapse of Enron and its devastating impact on the 401(k) accounts of its workers and retirees. For years, Enron had matched employee contributions to their 401(k) plans with employer stock, instead of matching their contributions with money that the employees could invest themselves. Even worse, Enron employees were prohibited from selling the company stock in their 401(k)s until they turned 50. When the company went bankrupt, the stock lost nearly all of its value. As a result, Enron employees and retirees lost a great deal of their retirement savings.
Fortunately, it looks like the tide may be turning away from this practice. According to the Bureau of Labor Statistics report, an increased number of employers are allowing workers to select how they want their 401(k) matching contributions to be invested. In 2000, the year before Enron’s failure, 65 percent of 401(k) plans allowed workers to select investments for their employer matching contributions. By 2005 this number had increased to more than 75 percent of plans allowing workers to control their 401(k) investments.
As we’ve written before, traditional defined benefit pension plans are limited to 10 percent in employer stock, but there are no such limitations on 401(k) plans. The Pension Protection Act of 2006 allows workers to sell employer stock in their 401(k)s after three years, but more could be done. Our policy agenda asks for a study of how to best limit company stock in 401(k)s. The BLS report might be an encouraging sign that employers have learned a lesson from Enron, but too many workers are still putting their eggs voluntarily in one basket.
The Bureau of Labor Statistics report is available in the Reports section of our web site.