Company stock in a 401(k) plan

[Guest Julie]

Our company is thinking about adding company stock as an investment option in our 401(k) plan. I need help! Does anyone know where I can get some good information on how distributions from that plan that include company stock are handled? Are capital gains/losses something we have to worry about?

[Greg Judd]

Hi Julie,

Funny you mention that "company stock in 401k plan" topic--it's been the latest tack over in the High Explosives thread: http://benefitslink.com/boards/index.php?showtopic=6896

Other background info can be found in this piece by Jane Bryant Quinn, and in many other pieces--well, ok, at least this other one, driven recently by the kind of events summarized in this 3/2000 CBS Marketwatch article".

DOL's had hearings on related issues within the past couple of years; you can probably pick up good stuff at DOL's PWBA site.

[Kirk Maldonado]

Make sure that you have competent counsel advise you on the securities laws consequences of adding that investment option.

[Guest Brooks]

Hi Julie:

Regarding Company stock as an investment option in a 401(k) plan, we are reminded of the following:

There Was a Little Girl by Henry Wadsworth Longfellow

There was a little girl, she had a little curl

Right in the middle of her forehead;

And when she was good, she was very, very good,

And when she was bad, she was horrid.

Our experience with company stock in a qualified plan is nearly 100% like this little girl . . . i.e., it is very, very good, or it is horrid.

Query: Why is the company thinking about doing this? Honest, now! If the company engaged an RIA to advise the company how to make the plan better, et cetera, would the RIA give this advice?

Summing up - act in the exclusive best interest of the plan participants, and BE VERY CAREFUL. And do not underestimate the not so subtle peer pressure on ordinary people to "show loyalty - invest in the company" et cetera.

Be sure to look at the other links that you have been referred to; we have read them all, and they are worth your attention.

When all is said and done, there are not many cases where the "pros" will exceed the "cons" - if a mistake is to be made, the best mistake would be not to make company stock an investment option. We would thus generally recommend against such a feature, unless there was a compelling case favoring this feature.