401(k)s Hold Risky Levels of Company Stock: Pro

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Contrary to the advice of retirement experts, employees at some of the largest U.S. corporations have as much as 70 percent of their retirement savings invested in company stock, according to David Blanchett, head of retirement research at Morningstar Investment Management.

Ideally, employees' 401(k)s should not include any of their own company's stock, says Blanchett. The risk, he says, is to the employee and the company alike.

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"The last thing you want to have happen is to encourage your employees to buy your company stock in their 401(k) and have it drop 40 to 50 percent, so I think the liability there is for the companies that offer it," Blanchett explained on CNBC's "Power Lunch."

Long term, the trend has been for companies to move away from offering their own stock as an option in their 401(k) plans, so Blanchett was surprised when he began compiling public data and found 184 company 401(k) plans with at least 20 percent of their employees' balances were invested in company stock in 2012.

Tightly held Publix, the supermarket chain, tops his list, with more than 70 percent of its employee 401(k) holdings invested in company stock. Sherwin-Williams was also above 70 percent. Nineteen companies, including Colgate-Palmolive, Exxon Mobil, Dillard's, Chevron, McDonald's and Lowe's, have more than half of employees' 401(k) assets invested in their own stock.

Blanchett understands why some people stick with their own company's stock. "There's a great quote, 'Invest in what you know'," said Blanchett, "and a lot of employees feel their company stock is very safe." While many have seen their own companies outperform the market, he said, there is risk when the employees begin to believe that can continue indefinitely. One needs to look no further than Enron to see why that could be a problem.

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The Department of Labor guidelines recommend that employees entrust no more than 20 percent of their 401(k)s to their own company's stock.

Blanchett goes even further. "I think the best number is zero percent. That's not practical for a lot of reasons for some people, but no more than 10 percent."