Bear Stearns, High Concentrations of Employer Stock, Statistics: Company Stock in 401(k) Plans

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Tue, Mar 18, 2008
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The Week That Shook Wall Street: Inside the Demise of Bear Stearns discusses the details behind the sale of Bear Stearns to J.P. Morgan Chase & Co. Since it is estimated that about 30% of Bear Stearns were employee owned, the issue of being Too Concentrated in Employer Stock is again being revisited. The Job/Stock Double Whammy discusses how employees that are heavily invested in employer stock are at risk of losing their jobs and their savings. It mentions how owning company stock was a part of their culture, as well as for Lehman Brothers Holdings Inc. and Merrill Lynch & Co., who reportedly are each more than 25% employee owned. The article also contains comparisons to Enron and Lucent.

The Employee Benefit Research Institute (EBRI) has released an information sheet to help put the statistics into perspective:

The recent collapse in the value of Bear Stearns shares has led to new interest in the role of company stock in 401(k) plans.

The nonpartisan Employee Benefit Research Institute (EBRI) has done extensive analysis on company stock in 401(k) plans. The primary source of data on holdings in company stock is the EBRI/ICI Defined Contribution Participant Database. The most recent annual publication from this database is for end-of-year 2006 and is available online at www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3838

The August 2007 EBRI Issue Brief reporting those results found that, on average, 401(k) participants today hold significantly less of their account assets in company stock than they did in 1996. Among the highlights about company stock from that latest EBRI/ICI report:

  • In 2006, average holdings of company stock in 401(k) plans amounted to 11 percent of total assets, down from 19 percent in 1996 (see Fig. 20 in the August 2007 Issue Brief, url above).
  • Overall, about 45 percent of 401(k) participants have company stock available to them as an option. Because primarily large, publicly traded companies tend to offer company stock in their 401(k) plan, only 3 percent of 401(k) plans offer company stock as an option (see Fig. 22).
  • There is significant variation in company stock holdings. The EBRI/ICI database shows that, of those in plans with company stock as an option, 7.3 percent of 401(k) participants have 90 percent or more of their 401(k) assets in company stock, while 44.5 percent have no company stock at all (see Fig. 32).
  • Among recently hired 401(k) participants in plans that offer the option, 42 percent had company stock in their accounts. This is down from 60 percent in 1998 (see Fig. 37).

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Topics: Studies and Statistics, Information Page, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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