GAO: Workers Should Know Risk Of Too Much Employer Stock In 401(k)s

But, in cases when company stock does make up the majority of workers pension assets, "employees are exposed to the possibility of losing more than their job if the company goes out of business or into serious financial decline," the researchers write. "They are also exposed to the possibility of losing a major portion of their retirement savings."

The Employee Retirement Income Security Act of 1974 requires employers to give plan participants some basic information about the investments in the plans.

But current "regulations do not require companies to disclose the importance of diversification or warn employees about the potential risks of owning employer securities," the GAO researchers write.

Some employers worry that simply telling employees about the problems that could result from keeping too much employer stock in 401(k) plan accounts could expose them to lawsuits, the researchers add.

The researchers recommend that Congress consider requiring employers to provide an investment education notice containing basic information about risk management and the importance of diversification.

The text of the report is available at http://www.gao.gov/cgi-bin/getrpt?GAO-02-943.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 14, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.