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The Employee Ownership Update

Loren Rodgers

March 15, 2013

(Loren Rodgers)

Public Companies Reducing Company Stock in 401(k) Plans

According to a recent survey by Pensions & Investments, "among the biggest DC [defined contribution] plans, company stock represented a 15.6% allocation as of Sept. 30. Data from previous surveys show an almost steady annual drop from the 24.7% stock allocation in 2006." An annual survey by the Plan Sponsor Council of America reports that in 2002, 16% of 401(k) plans had employer stock as a majority of their plan assets. The most recent data available, from 2011, shows that that rate had declined to 5.3% of plans.

In addition, Pension & Investments reports that large companies are taking "aggressive steps" to reduce holdings of company stock in 401(k) plans. Those steps include capping the portion of participant accounts that can be in company stock, providing education campaigns about the value of diversification, and removing company stock as an option from their plans.

UK to Ease Rules for Share Plans

The British government will make changes to the Companies Act of 2006 to make it easier for employees to own shares, most significantly for closely held companies. The new law, to be enacted this year, will allow all companies to authorize off-market share repurchases by a majority vote rather than a supermajority, including for a series of off-market purchases. Companies can also now hold shares in treasury for use in share plans. Closely held companies will now be able to pay for their own shares in installments rather than, as under current law, in a single purchase. They will also now be able to use capital reserves to repurchase those shares.

The Moench Presumption in the Second Circuit

The Second Circuit Court of Appeals (New York, Connecticut, and Vermont), along with the Third, Fifth, Sixth, Ninth and Eleventh Circuits, has adopted the Moench presumption, which holds that a plan fiduciary's choice to continue offering company stock as an option for plan participants is presumed to be prudent when the plan requires the fiduciaries to do so. In Taveras v UBS AG, a judge in the District Court for the Southern District of New York relied on the Moench presumption to dismiss two complaints, one against a plan in which employer stock was mandated, and one in which it was not. The Second Circuit ruled that "the District Court erred in applying the presumption of prudence as to one of the two plans..., as that plan did not require or strongly encourage investment in UBS stock or the UBS Stock Fund. We hold that the District Court did not err, however, in applying the presumption of prudence as to the other plan at issue."

U.S. Ranks 19 out of 150 in Retirement Security

According to research by Natixis Global Asset Management, the United States ranks in the top 25 for global retirement security, based on financial resources, but also on health and quality of life. Noting that half of the U.S. work force lacks employer-provided retirement, the report ranks the U.S. behind many European countries and behind Canada, Australia, Japan, and Israel.

CEPI Symposium on Equity Compensation: March 26

The Certified Equity Professional Institute (CEPI) at Santa Clara University is hosting its 9th annual symposium, with topics that include balancing the expense and perceived benefits of equity compensation programs, tips for getting a job in the field, working with mobile employees, administering an ESPP, and much more. More about the symposium, including a field for registration, is available at the CEPI's Web site.

Author biography and other columns in this series

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