Private Pensions: Participants Need Information on the Risks of Investing in Employer Securities and the Benefits of Diversification

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A letter report issued by the General Accounting Office with an abstract that begins "The financial collapse of large firms and the effects on workers and retirees has raised questions about retirement funds being invested in employer securities and the laws governing such investments. Pensions are important source of income of many retirees, and the federal government has encouraged employers to sponsor and maintain pension and savings plans for their employees. The continued growth in these plans and their vulnerabilities has caused Congress to focus on issues related to participants investing in employer securities through employer-sponsored retirement plans. GAO's analysis … continued below

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United States. General Accounting Office. September 6, 2002.

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A letter report issued by the General Accounting Office with an abstract that begins "The financial collapse of large firms and the effects on workers and retirees has raised questions about retirement funds being invested in employer securities and the laws governing such investments. Pensions are important source of income of many retirees, and the federal government has encouraged employers to sponsor and maintain pension and savings plans for their employees. The continued growth in these plans and their vulnerabilities has caused Congress to focus on issues related to participants investing in employer securities through employer-sponsored retirement plans. GAO's analysis of the 1998 plan data for the Fortune 1,000 firms showed that 550 of those companies held employer securities in their defined benefit plans or defined contribution plans, covering 13 million participants. Investment in employer securities through employer-sponsored retirement plans can present significant risks for employees. If the employees' retirement savings is largely in employer securities in these plans, employees risk losing not only their jobs should the company go out of business, but also a significant portion of their savings. Even if employers do not declare bankruptcy, employees are still subject to the dual risk of loss of job and loss of retirement savings because corporate losses and stock price declines can result in companies significantly reducing their operations. Under the Employee Retirement Income Security Act and the Securities Acts, the Department of Labor and Securities and Exchange Commission (SEC) are responsible for ensuring that certain disclosures are made to plan participants regarding their investments. Although employees in plans where they control their investments receive disclosures under the act regarding their investments, such regulations do not require companies to disclose the importance of diversification or warn employees about the potential risks of owning employer securities. SEC requires companies with defined contribution plans that offer employees an opportunity to invest in employer stock to register and disclose to SEC specific information about those plans. In addition, in most cases the underlying securities of those plans must be registered with SEC. However, SEC does not routinely review these company plan filings because pension plans generally fall under other federal regulation."

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Government Accountability Office Reports

The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for the U.S. Congress investigating how the federal government spends taxpayers' money. Its goal is to increase accountability and improve the performance of the federal government. The Government Accountability Office Reports Collection consists of over 13,000 documents on a variety of topics ranging from fiscal issues to international affairs.

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  • September 6, 2002

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  • June 11, 2014, 5:03 a.m.

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Thumbnail image of item number 1 in: 'Private Pensions: Participants Need Information on the Risks of Investing in Employer Securities and the Benefits of Diversification'.
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United States. General Accounting Office. Private Pensions: Participants Need Information on the Risks of Investing in Employer Securities and the Benefits of Diversification, report, September 6, 2002; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc295308/: accessed May 30, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.

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