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Although employers generally are not doing anything to discourage employees from investing their 401(k) contributions in company stock, many are concerned about the issue, according to a new survey.
More than two-thirds of employers with 401(k) plans surveyed by Darien, Conn.-based Rogers, Casey & Associates Inc., expressed some concern over the percentage of employee assets invested in company stock.
The survey, which covers the 1996 plan year, includes responses from 515 companies with a 401(k) plan, representing 2.7 million participants and more than $330 billion in assets.
"Although there appears to be no concerted effort to reduce the overall exposure to company stock in 401(k) plans, plan sponsors have expressed a sensitivity to the risk inherent in such a non-diversified investment option," said Robin S. Pellish, managing director and senior consultant at Rogers Casey, an investment consulting firm.
Some 13% of the respondents said they are either "very" or "extremely" concerned about the issue; another 22% classified themselves as "concerned," while 34% said they are "somewhat concerned" about the issue.
On average, employees allocate 10% of assets to company stock. Plan sponsors said they are very concerned when employees allocate more than 30% of assets to company stock.
Plan sponsors are addressing this issue by educating employees about the importance of diversification, noted Adele Heller, a Rogers Casey director and coauthor of the survey.
Although "there's a general concern" among plan sponsors about how much of their 401(k) assets employees invest in company stock, the most important issue is whether employees understand investment objectives and diversification, commented Stacy Schaus, a consultant at Hewitt Associates L.L.C. in Lincolnshire, Ill.
The survey also found that over the past year, plan sponsors have become more optimistic about whether employees will have accumulated enough funds for their retirement. One-third of the respondents said they believe more than half of participants will have enough resources for retirement, up from 27% that felt that way in 1995.
The most common reason cited by respondents about why employees may not have enough funds for retirement is that employees begin saving too late in their careers.
Respondents also blamed personal indebtedness, inappropriate allocation of funds and insufficient education as primary reasons for employees' not having enough retirement assets.
On another issue, plan sponsors reported an increase last year in 401(k) plan participation rates. Some 60% of plan sponsors reported participation rates greater than 80%; in 1995, 55% of plan sponsors reported participation rates greater than 80%. And one-third of respondents reported participation rates greater than 90% in 1996, up from 26% of respondents the previous year.
The survey also found that:
The number of investment options offered in 401(k) plans continues to grow.
Some 61% of plan sponsors offered seven or more investment options last year, up from 42% in 1995 and 33% the previous year. The average number of investment options offered last year was 7.9.
Six percent of plan sponsors are considering automatically enrolling employees in their 401(k) plans unless they specifically say they do not want to participate.
More than 90% of the plans surveyed offered some form of company match. More than 75% of the plans offered a cash match, and 15% offered a match of company stock.
Only 10% of plan sponsors rated their communications program as "excellent," while 49% said their communications program was "good." One-third of respondents rated their communications program as "adequate," while 7% said it was "poor."
Copies of the survey, "1996 Defined Contribution Survey," are available free to companies, public entities and other organizations that are or may be plan sponsors. There is a $500 charge for the survey for consulting firms or research organizations. The survey may be obtained from Karen Dehmel, marketing manager, Rogers, Casey & Associates Inc., 1 Parklands Drive, Darien, Conn. 06820-1460; 203-656-5947; fax: 203-656-2233.