In the wake of Enron's debacle, the Financial Planning Association wants President George W. Bush to allow 401(k) participants to diversify their holdings out of company stock.

In a letter sent to the White House, FPA President Robert Barry asked the Bush administration to support changes in current federal policy. Barry said today that the FPA would like the administration to scale back plans that induce workers to over-allocate in company stock.

Consider the FPA's proposed changes:

  • All workers should be allowed to divest employer securities or employer real property in a qualified plan at any time, regardless of age and job status.
  • If a company's defined-contribution plan offers company stock, the employer should offer at least one diversified equity option, such as a domestic stock index fund.
  • In matching programs, employers should be prohibited from requiring workers to purchase company stock as the employee's contribution.

However, Barry said the FPA does not support a restriction on companies providing their matching contributions solely through corporate stock. The FPA fears that restrictions could possibly discourage employers from establishing plans, which could hinder the employees' ability to save for retirement.

The FPA also would like the Bush administration to emphasize the value of a diversified portfolio to employers and employees.

Barry, a planner in Hackettstown, N.J., said that it has been his experience that employees tend to invest 401(k) monies into their employer's company. "They think they know it better than anything else," he said. "There is always that propensity."

And while the FPA hopes for change, Barry wants to keep the topic in perspective. He realizes that there have been workers who have lost their fortunes at Enron, and workers at Microsoft who continue to build their wealth.

"I think there should be legislation," he said, "but you can't legislate away risk."

Click here to read the FPA's letter to the White House.

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