Everybody’s Doin’ It: Employees Loaded Up on Company Stock

Survey shows employer stock comprises nearly a third of DC pension assets. Elsewhere: Women executives say they're underpaid, and Andersen settles--again.


The near-vaporization of Enron Corp.’s 401(k) assets has painfully reminded many employees about the dangers of investing a large portion of their retirement savings in their employer’s stock.

A new survey, however, concludes that virtually every plan sponsor—92 percent, in fact—includes its company stock in its defined contribution pension plans. Indeed, employer stock represents 29 percent of the total defined contribution assets in those plans, with an average total amount of $2.4 billion.

The survey does show that the rules governing contributions, matching, transfer, and trading restrictions are not uniform, however. Nevertheless, as a result of what happened to Enron employees, Congress is mulling major restrictions on the use of company stock in defined contribution plans.

The survey was conducted by the Committee on Investment of Employee Benefit Assets, an affiliate of the Association for Financial Professionals (aka CIEBA of AFP). The poll takers also found that :

  • Ninety percent of survey participants offer a company match program. Half of them require the full match to be invested in company stock, while 41 percent do not require any of the match to be in company stock.
  • Of those that require all or part of the match to be invested in company stock, 72 percent place some type of transfer restriction on the company stock match. However, nearly 20 percent of those with restrictions on stock transfers expect to liberalize some or all of these restrictions over the next 12 months.
  • Forty percent of respondents indicated that their plans had an employee stock ownership plan (ESOP) feature. These plans tended to be larger than plans without such a feature; the average value was over $7 billion compared with $3.7 billion. In addition, more than three-quarters of the respondents with an ESOP feature require 100 percent of the match to be in company stock.
  • Seventy-four percent of respondents who place restrictions on the company stock match use some type of age-dependent rule regarding transfer restrictions. Sixteen percent favor time-dependent diversification rules. Respondents in that group said they require employees to hold their company’s stock anywhere from 1 to 10 years. Twenty percent cited “other” transfer policies, such as a combination of age and service requirements, and partial diversification after a period of time.
  • Defined contribution plans hold a relatively small percentage of outstanding shares of company stock, however. In 72.5 percent of the cases, DC plan holdings account for just five percent or less of their company’s outstanding shares.

“As fiduciaries for many of the nation’s largest pension funds, CIEBA of AFP members have first-hand knowledge of the issues related to the use of employer stock in 401(k) plans, and how employees and plan sponsors may be affected by proposed changes,” says AFP’s president and CEO Jim Kaitz. “Any change in law or regulation should be administratively feasible, not create a whole new regulatory regime, nor impose significant costs on plans or their participants.”

Fifty of CIEBA of AFP’s 120 plan-sponsor members responded to the survey, which was conducted last October. The average market value for 401(k) plans in the survey was $5 billion.

Another Day, Another Andersen Settlement

Several days after revealing that it settled with investors in the Baptist Foundation of Arizona for $217 million, embattled auditor Andersen has apparently settled another dispute.

In a one-sentence 8-K filing, Department 56 Inc. said it received $11 million from Arthur Andersen LLP and Andersen Worldwide Societe Cooperative to settle litigation.

No other information was provided in the filing.

Here’s what we do know. Back in September 2000, Andersen sued Department 56, alleging breach of contract in connection with computer system implementation work. Andersen sought $600,000 plus interest and legal costs.

Then, in March 2001, Department 56 countersued, charging Andersen with fraud, conspiracy, tortuous conduct, and breach of contract in connection with computer system implementation work solicited and performed by Andersen. Management at Department 56, which makes and sells collectibles and giftware, sought $1 billion in compensatory damages plus punitive damages and legal costs.

Also on Andersen’s radar: Japan’s Nikko Asset Management Co. said it would join a U.S. class-action suit seeking damages from Enron and Andersen. Nikko says that Enron’s collapse in the fall caused a large number of cancellations in a domestic fund managed by Nikko that contained bonds issued by Enron, according to reports.

The Women of Wall Street: Shafted

According to women working in the financial-services sector, the glass ceiling is still intact.

Seventy percent of senior-level women in the financial-services industry believe that females earn either “somewhat less” or “much less” than males in base salary. Almost 83 percent believe that women earn “somewhat less” or “much less” than men in performance/incentive bonuses. This, according to a recent survey conducted by the Financial Women’s Association.

Respondents noted improvements in corporate human resources policies to encourage diversity. But they still see inequality in both compensation and promotional opportunities.

While 20 percent feel that the situation regarding equal pay for women is better than it was 3 years ago, 56 percent believe that it will take another 10 years before women are treated the same as men.

“FWA members have the right credentials and they have solid professional achievements,” says Betsy Werley, FWA president. “Yet, many feel limited by factors beyond their control.”

The women did acknowledge that their employers are doing a better job at creating a more diverse workplace. Forty-eight percent of the respondents believe there have been improvements in offering flexible work schedules in the past three years, and 42 percent believe that the Wall Street workforce has become more diverse.

Looking out 10 years from now, 75 percent of respondents expect the representation of women in senior management to be “somewhat better” or “much better,” and 72 percent are optimistic that more seats on corporate boards will be held by women by 2011.

More than 1,000 members of the FWA were surveyed in November and December of 2001. The majority of the respondents are between 45 and 60 years old, have a postgraduate degree, and have a household income of $200,000 or more.

Twenty-four percent are at the executive vice president/senior vice president/managing director or CEO/president level.

Short Takes

  • A bankruptcy judge approved the distribution of another $5 million in payments to about 4,500 laid-off Enron Corp. employees. The payments will go to a workers’ hardship fund. Currently, each former Enron worker receives $4,500 in severance and additional vacation and benefit reimbursements, for up to a maximum of $15,000. The laid-off workers, however, reportedly believe they deserve up to $30,000 each in severance, or a total of nearly $70 million more, under Enron’s employee policy. Enron management disagrees.
  • Proprietary Industries Inc. said its auditor, Hudson & Co., declined its reappointment as the company’s auditor for fiscal 2002. In a press release, Proprietary, a merchant bank, said it received a letter from Hudson stating that: “After careful consideration and having particular regard to the corporation’s growth objectives and its desire to access U.S. markets, we have concluded that the corporation would be better served by engaging a firm of auditors with cross-border capabilities, for its 2002 fiscal year. Accordingly, Hudson & Company LLP respectfully declines to stand for reappointment as auditors for the corporation for the 2002 fiscal year.”
  • There is good and bad news concerning employment. The good news: layoff announcements at U.S. companies fell 40 percent in February compared with January. The bad news? The number of job cuts was still too high to signal a rebound in the job market, says Challenger, Gray & Christmas. The telecommunications sector continued to set the pace for the most monthly job cuts.

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