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Employee Benefits Survey
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People are asking...

If employees cannot choose 401(k) investments, how does the plan handle investments?

Answer: For this question, the most recent relevant data are from the 1993 Employee Benefit Survey. At that time, 58 percent of workers participating in a savings and thrift plan (typically a 401(k) plan) were in plans that allowed them to choose how employer matching contributions were invested. Among those workers, nearly 4 out of 10 could choose to invest such contributions in company stock.

In contrast, for those who had no choice as to the investment of employer contributions, as many as three-fourths saw such funds invested in company stock. Among plans that automatically invest employer funds in company stock, some do allow employees to change those investments, subject to restrictions. For example, a typical plan might allow you to transfer from the company stock fund to another fund once each calendar year as follows:

  • You may transfer 50 percent of your balance in the company stock fund after fifteen years of participation in the plan, or at age 55 or older with ten years of participation in the plan;
  • You may transfer 100 percent of your balance in the company stock fund at age 60 or older with ten years of participation in the plan, or at age 70 ½.

Another plan might allow all those age 55 and older to transfer all employer funds from company stock to other plan investments at any time. Many plans, however, do not allow employees to transfer employer funds out of company stock under any circumstances.

These findings are derived from the 1993 Employee Benefits Survey of full-time workers in large private establishments (those with 100 workers or more), the only year that BLS data are available that allow such tabulations. BLS published data on investment choices in savings and thrift plans from the 1993 survey (BLS Bulletin 2456). The published data indicate whether employees have a choice of how employee and employer contributions are invested, the types of investments allowed among all plans, and the types of investments among those plans that permit employees to choose investments. Company stock is one of the investment choices. Using the published data, users can derive the differences in the availability of stock as an investment for those who can choose the investment of employer funds and for those who cannot.

Because the survey was unable to determine the investment choice for some participants, the estimate that three-fourths of those without investment choice had employer funds invested in company stock is an upper bound. If all those with unknown investment choice actually had no choice of investments, the same calculation would indicate that about two-thirds of those with no choice had employer funds invested in company stock.

For more information on retirement plans, go to http://www.bls.gov/ncs/ebs/.

 

Last Modified Date: May 9, 2002