401(k)s and Company Stock: How Can We Encourage Diversification?

Introduction

Over the past two decades, the private pension system in the United States has shifted from defined benefit to defined contribution plans, and the fastest growing defined contribution plans are 401(k)s. The defining characteristic of 401(k) plans is that employees, rather than employers, bear the investment risk. Currently, many employees hold a significant portion of their 401(k) funds in their companies’ stock, which increases the risk of their plans…