More Data on Employee Ownership Through 401(k) Plans

A new survey by IOMA, a newsletter on defined contribution and pension plans, finds that 40% of the allocations in the largest defined contribution plans are in company stock. Looking at companies with defined contribution plan assets of at least $200 million (355 firms), IOMA found that 70% of the companies sponsoring the plans have at least one defined contribution plan offering company stock as an investment option. Employees at these companies have $255 billion invested in employer stock through these plans. This number includes all defined contribution plans, so ESOPs and profit sharing plans would also be in the survey, but much of it would be in 401(k) plans.

IOMA then looked at the return on these investments. The 1994 performance of employer stock (+13.5%) was comparable to the Russell 3000 index (+13.9%), but lagged behind the S&P (+15.6%). The results would be appear worse, however, if adjusted for diversity risk. While some employer stock investments did extremely well, some did very poorly; a diversified investor would have had a much more predictable return.