Your employer's stock: How much is too much?

By Mark Miller

Nov 11 (Reuters) - The 2001 collapse of Enron may look like small potatoes by post-2008 standards of corporate malfeasance and disaster. But it was pretty ugly at the time -- and nothing was more painful to watch than the hit employees took when they lost their jobs and their retirement savings all in one blow.

At the end of 2000, 62 percent of assets in Enron's 401(k) were held in the company's own stock; when Enron went into a free fall the following year, it froze the plan assets and soon-to-be-jobless workers watched helplessly as their savings evaporated.

The Enron debacle helped advance a pension reform debate in Washington that ultimately produced the Pension Protection Act of 2006 (PPA). That law included several important reforms aimed at reducing worker exposure to the employer stock, but it stopped short of actual restrictions on the amount they could hold.

Five years later, plenty of big corporations still have heavy concentrations of their own stock in retirement plans. Brightscope, a financial research firm, provided Reuters with a list of companies with the highest concentrations of their own shares in 401(k) plans (see chart at).

In some cases, the heavy concentrations are the legacy of earlier employee stock ownership plans, or companies that use their own shares to provide matching contributions. That's the case at Colgate-Palmolive Co. , which topped the list with 75.4 percent of plan assets in its own stock at the end of 2009 (the most recent data available). The company has offered matching contributions in its own shares since 1989, a company spokeswoman says.

Scana Corp ., an energy company that ranked No. 4 on the Brightscope list, had 100 percent of its plan in company stock until it began diversification efforts in 2000. Another factor: its stock has been a strong performer.

Towers Watson research shows that 78 percent of Fortune 100 employers who allow employees to hold their own shares don't limit their holdings.

Yet volatile financial and employment markets point strongly to the need for retirement investors to protect themselves -- no matter how attractive an employer's stock may look. "I wouldn't tell people not to invest in their own stock, but they should keep the percentage reasonable," says Roger Wohlner, a financial adviser to both retirement plans and individuals. "If your income and future retirement both are tied to your employer, it can be a real double-edged sword if the company gets in trouble. You lose your job and your retirement savings."