Why You Shouldn?t Let Your Employer Give You Stock For Your 401(K)

Published October 1, 2015 by TNJ Staff
Investment
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The employees of companies such as RadioShack, Enron and Lehman Brothers serve as cautionary tales against allowing your employer to give you stock for your 401(k). After working for years and building up their retirement accounts, these employees had little or nothing to show after their companies went on the downswing. This practice of company stock is common; in fact, Aon Hewitt data from 2013 show that nearly 40 percent of companies have investing in their own stock as an option.?

Retirement plans aren?t bonuses

Retirement plans are serious business. They?re not cute extras or bonuses that are okay to gamble on. While some companies allow employees to use their own money to buy employers? shares, even offering discounts, such opportunities are completely separate, from retirement plans.

The companies are biased

When your company offers itself up as an investment option, possibly even offering matching opportunities if you invest in its stock, it?s basically saying: ?We endorse ourselves as a sound, long-term investment.? Except it is biased, and if you invest too much money in one company, you could lose nearly everything.

Companies don?t act quickly enough (or at all) to protect employees

As a 2013 paper on nearly 730 financially distressed companies during 20 years indicates, companies are extremely slow to act to protect their employee-investors when they?re in financial trouble. RadioShack is a perfect example; as the company?s fortunes declined precipitously, the amount of employee 401(k) plan contributions increased.

What to do

If you work for a company that matches your contribution in its own stock, sell it about four times a year, and reinvest the money. Set calendar reminders to help you remember. In the worst cases, when your company forces you to keep the stock for a few years, file objections with human resources and work to get the policy changed.

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TNJ Staff