How Much Company Stocks in 401(k)
My wife has been with her current company for nearly five years and her employer offers a match for the first 6% of her 401(k) contributions. The only catch is the match is given in company stocks in the form a fund. Ever since she joined the company, she maxed out every year and now a sizable amount of her company stocks, while the resets are in Fidelity mutual funds. Last week, when reviewing her portfolio, we found that nearly 23% of her 401(k) is in her company’s stock fund! Though it’s nice to have an employer giving generous matches, the percentage is really at an uncomfortably high level which could be a problem in long term.
So we decided to trim the holding to 5 – 10%. When we tried to exchange the company stock fund to other mutual funds she currently holds, an error message popped up, saying employer sponsored contributions are not eligible for such transactions. Next day, my wife called Fidelity and was told that, according to the current rule, employees have to hold the company match portion before they are 50! That’s more than ten years away and anything could happen to the company during this awfully long period of time. One exception is that portion can be traded if the employee leaves the company. Fidelity also said the rule is currently under review and changes may be made. But nobody knows when that will happen despite that the new Pension Protection Act 2006 bars companies from forcing employees to invest any of their own retirement savings contributions in company stock. For now, there’s nothing we can do but hoping that her company doesn’t run into any trouble.
P.S. According to Fidelity, the new pension law
Gives workers the right to sell publicly-traded company stock in their retirement plan account after 3 years of service for matching contributions, and immediately for employee contributions. Also prohibits companies from forcing employees to invest any of their own retirement savings contributions in company stock.
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