Change in US rule on Company Stock in 401K

[Running_Man]

The law was changed effective January 1st to no longer require employees to own company stock in their 401K for the company stock they are given whether as a match or as part of their purchases. This would seem to release quite a bit of selling action or at least a cessation by companies of buying their own stock for the treasury stock.

A part of my negative outlook for the year is based on this. I have not heard this being discussed anywhere although if the rule was the exact oppisite requiring stock ownership I think it would be everywhere on CNBC for bullish reasons. has anyone else heard about this?

 

[brewer12345]

Sadly, I think this will not change employee holdings much. Many people buy employer stock because they drink the kool aid, not because they have to.

 

[bbbamI]

DH got a benefit notice about this. This year any vested employee can move 33%, 2008 66%, 2009 100%. Any company match stock earned after the first of this year can be transferred to another investment option. This is for his Mega corp, not sure about others.

We will do this slowly as the stock price is going up.

 

[Anansi]

There will also be more companies auto enrolling employees in a retirement plan which would tend to move things in the opposite direction.

As to employees actively selling company stock, I think there is fairly good evidence that a significant percent of employees have no idea what they are investing in and are certainly not actively managing their accounts. That explains why many employees still have all their retirement money in the default money market account.

 

[Nords]

We will do this slowly as the stock price is going up.

One of this board's ERs got there by exercising his company's options every year, immediately selling the stock, and paying grunches of taxes.

Every year his co-workers told him he was an idiot. They were getting richer a lot faster than he was.

Then the stock price backed off about 80%. They were getting poorer a lot faster than he was.

He ER'd in the midst of the meltdown so he doesn't know if they're still calling him an idiot.

You already have your main source of income, your job, vested in that company's health. I can't think of a good reason to concentrate your holdings in company stock just because it's going up. If things ever got to the point where your job was in jeopardy, you'd probably also be suffering the double whammy of your company's cratering stock price...

 

[bbbamI]

Nords, I agree it's not wise to have company stock in one's portfolio. However all of the match is company stock in DH's 401k plan (he didn't have a choice). He does not buy the company stock. It's only been this year that we can make a change.

Over the past few years the company has also given options. When I was still employed there, I decided not to get too greedy, exercised my options and made a tidy profit.

The % in our portfolio of company stock is small. They do pay good dividends, so we'll just have to cuss and discuss.

 

[DRiP Guy]

One of this board's ERs got there by exercising his company's options every year, immediately selling the stock, and paying grunches of taxes.

Every year his co-workers told him he was an idiot. They were getting richer a lot faster than he was.

Then the stock price backed off about 80%. They were getting poorer a lot faster than he was.

He ER'd in the midst of the meltdown so he doesn't know if they're still calling him an idiot.

You already have your main source of income, your job, vested in that company's health. I can't think of a good reason to concentrate your holdings in company stock just because it's going up. If things ever got to the point where your job was in jeopardy, you'd probably also be suffering the double whammy of your company's cratering stock price...

I took the corp match in my 401k because it was the best deal in the 401k, but I would trade over to an index fund as soon as it was 'qualified', because working at Megacorp for a salary, getting part of my compensation via Megacorp options and restricted stock, doing a Megacorp ESOP, and having those retirement matching funds in Megacorp, was way too much overall exposure.

* So, as I say, I moved the match in 401k right away - won't have to do that anymore; I got the same letter!

* I cash in any options (or restricted stock) as soon as vested above water, I don't look to maximize gains there by holding and hoping.

* I cash shares out of the ESPP as soon as they hit 'long term' status, but I do participate, since if the stock only goes sideways, it is still a net 10% return due to the discounted price, and for 15 years, my company stock has handily beat the market (no guarantees).

One of the things about getting these supposed bennies is that you have to work it to not be over exposed.

 

[gindie]

This is for his Mega corp, not sure about others.

This provision is only for publicly-traded stock.