Firms Changing How They Match Pension Funds Philadelphia Inquirer (08/05/03) Vol. 17, No. 10 p.38; Mason, Todd
Continued class-action litigation against companies that offer to match employees' 401(k) plan contributions with company stock may prompt companies to reduce their matching contributions or stop offering company stock altogether. While many companies make matching contributions to workers' 401(k) plans using company stock because of accounting and tax benefits, they also cite the motivational reasons behind providing employees with company stock. Since the Enron scandal highlighted the dangers of over-investing in company stock, attorneys and regulators have begun cracking down on companies' use of the method. A survey by Temple University professor Jack VanDerhei discovered that companies are more likely to reduce their matching contributions or scale back on their company stock offerings in reaction to these regulatory and legal efforts. Polls show that companies would rather eliminate the option than deal with facing litigation similar to the class-action lawsuits faced by Enron and other companies filed on behalf of employees who lost much of their savings due to their over- investments in company stock. Legislation proposed in the House would place limits on how long employees must hold company stock before selling and would allow companies and plan sponsors to provide employees with limited investment advice. A March survey by the Association of Financial Professionals found that more companies are lifting restrictions on when employees can sell their company stock. The number of plan sponsors that loosened their restrictions on the sale of company stock grew to 66.7 percent by the end of 2002, up from 51.3 percent the year before, according to the survey.