The Role of Company Stock in Defined Contribution Plans

Olivia S. Mitchell and Kent Smetters

in The Pension Challenge

Published in print November 2003 | ISBN: 9780199266913
Published online August 2004 | e-ISBN: 9780191601323 | DOI:
 The Role of Company Stock in Defined Contribution Plans

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This chapter examines the holding patterns of company stock in defined contribution (DC) plans, why employers and employees tolerate high levels of company stock holdings, and the impact of concentrated holdings on retirement incomes. It is argued that retirement systems with concentrated stock positions will always have some participants lose their DC plan savings to firm bankruptcy. Company stock in retirement portfolios leads to greater extremes in accumulated wealth due to its higher volatility, and a lower median wealth compared to a system of diverse investments.

Keywords: defined contribution plans; retirement plans; employee stock ownership; investment portfolio; company stock

Chapter.  16019 words.  Illustrated.

Subjects: Financial Markets

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