PLANADVISER - January/February 2020 - 37

employee's compensation into the company's stock, " agrees
Daniel Kapinos, a partner in Aon PLC's rewards solutions
practice, in Philadelphia. " It basically comes down to the
fundamentals of investing-that diversity is always going to
be valuable. If you have a diverse portfolio of investments,
you're not putting all of your money into one thing. "
Between 1999 and 2016, the most recent year for
which it has data, EBRI found that 401(k) assets invested
in plan sponsor stock fell from 19% of total assets to 9%,
the lowest figure the institute had recorded. In addition,
newer employees were less likely to direct a portion of
their retirement plan contributions to company stock. Less
than one-quarter of recently hired plan participants had
employer stock in their 401(k) compared with 40% of all
plan participants.
Vanguard Group Inc. found that the proportion of
401(k) plan participants with 20% or more of their assets
in company stock fell to 19% in 2018, compared with 30%
in 2009.
Limiting Stock Ownership
" We don't see many organizations adding employer stock
as an investment option, " says Amy Reynolds, a partner
with Mercer in Richmond, Virginia. While some sponsors
are removing company stock from their plan's investment
lineup, she has noticed that more want help in establishing
policies that limit the amount a participant may hold in his
account. In some cases, long-tenured employees who may
be approaching a predetermined threshold are barred, at
least temporarily, from further investment in the stock.
The prohibitions are imposed when such longer-term
participants have built large 401(k) accounts that are
unbalanced as to company shares, Reynolds explains. An
employer will not want to force its workers to liquidate
their shares, yet, to avoid a legal liability, it may prohibit
... the proportion of 401(k) plan
participants with 20% or more
of their assets in company
stock fell to 19% in 2018,
compared with 30% in 2009.
them from purchasing more until the rest of their assets
have grown. Once the participant's overall balance is such
that the amount in company stock is comfortably below
the threshold, he may resume its purchase.
Investment Education is Key
Reynolds says one of Mercer's roles is to help plan sponsors
that want to offer company stock best decide how to
include it in their plan's investment portfolio.
" We advocate that those decisions be based on information
and that the sponsor certainly understand how the
participants are currently utilizing the plan as it makes
those decisions, " Reynolds says. A big question for many
plan sponsors is how to service employees who are on the
verge of retiring and may be preparing to roll money over
or cash out their 401(k). Mercer, therefore, prompts sponsors
to consider what information and services they need to
provide for employees in that transition phase.
" Often a plan that has stock as an investment option
will allow the participants who are invested in it to take
a distribution in shares at the time they leave the plan, "
Reynolds says. " That creates some potential for favorable
tax treatment for those participants, should they avail
themselves of that. "
CAPTRUST's Doss says, to some
Impact on ESG Scores
THE trend to limit the use of company stock as a retirement plan option overlaps
somewhat with the broader movement toward environmental, social and
governance (ESG) reporting. In recent years, as the ESG movement has spread,
shareholders have pressured companies to make public their commitment to
good corporate citizenship and demonstrate that they are creating a good work
environment.
An employer that provides personal finance and financial literacy training to
its workers and steers them toward building portfolios in the company defined
contribution (DC) plan that are diversified gains an advantage. It can make a
statement in a public ESG report that it helps its workers plan responsibly for
retirement, says Daniel Kapinos of Aon.
Employers that let employees build up too high a concentration of company
shares in a retirement plan risk getting a poor rating on the healthy workplace
portion of their ESG scores. To enhance their ESG ratings, some companies are
spending more time educating their employees about responsible investing and
stressing tactics such as holding a diversified portfolio. -JR
extent, the shifting views on the
utility of company stock in a retirement
plan should be viewed within
the overall trend of helping plan
participants make better decisions
about their retirement planning.
Advisers are working with plan
sponsors to make sure participants
have a better understanding of the
assets in their portfolio and how
the employer's shares fit within the
overall investment mix.
" There's a realization by plan
sponsors that offering stock to their
employees can be a significant benefit
to them, but it can also lead to somewhat
concentrated stock positions, "
Doss observes. " That might not ultimately
be the best thing for plan participants
if you don't offer them some
type of education. " -Joseph Radigan
planadviser.com January-February 2020 | 37
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PLANADVISER - January/February 2020

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