Enough is Enough

One of the worst duet pairings in history had to be Barbra Streisand and Donna Summer. That being said, I started humming their awful disco song “No More Tears (Enough is Enough)” after talking to a couple of retirement plan participants about their 401 (k) allocations.

I can’t believe that I still have to discuss concentration of company stock in 2008, when back in October, 2003 I wrote the following: “Remember when all of those people who worked at companies like Enron, WorldCom and Williams Cos. lost their life savings inside their retirement accounts? There was a flurry of Congressional calls for reform of 401 (k) plans, centering on the idea that maybe it wasn’t such a great idea to have company stock inside a retirement plan.”

At that time, everyone was going to come together---regulators, who would tighten up pension laws and protect plan participants from becoming too exposed; employers were going to bring in third party educational programs that would extol the basics of diversification; and employees were going to better manage their nest eggs to protect themselves the next time. Almost five years later, I am here to report that the regulators and the companies lived up to their end of the bargain, but plan participants continue to pile up company stock in their retirement accounts despite the hope that the massive post-dot-com losses would encourage different behavior.

This time it’s not the companies who are to blame—it’s the employees themselves. An analysis of data from Pensions & Investments found that the 65 biggest corporate defined-contribution plans for which data were available had $325 billion in combined assets, and roughly $86 billion—or 26%—of that was in company stock and many large corporations like GE and Chevron have more than half of their 401(k) assets in company stock.

I have recently encountered folks who continue to have far more than the 5-10% of company stock (the level that most advise is reasonable for participants) in their 401 (k) plans. For these two guys, the bet has paid off—each had beaten returns posted by the S&P 500 over the past year. I exclaimed, “That’s great! Now it’s time to take that money and reallocate.” Both had the exact same response: if it’s beating the index, why would I want to reallocate? The answer is easy: imagine if you were an Enron employee and you could have sold your position at tremendous gains? Instead you stubbornly hold on to your stock and are eventually wiped out, crying “it’s just not fair!”

This time around, there will be no tears from me for those who encounter losses due to over-concentration. Regulators and corporations alike have acted responsibly, but many retirement plan participants continue to do the same dumb thing and expect different results. To quote a most unmemorable song:

No more tearsIs enough is enough is enough is enough is enough is enough is enoughIs enough!