Investor Behavior and the Purchase of Company Stock in 401(K) Plans - the Importance of Plan Design

Posted: 14 Jul 2021

See all articles by Nellie Liang

Nellie Liang

Brookings Institution

Scott Weisbenner

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: 2002

Abstract

Using panel data for nearly 1,000 companies during 1991 to 2000, this paper finds that employees allocated nearly 20 percent of their total 401(k) contributions to purchases of company stock, and then relates this share to plan design features and firm financial characteristics. We find that the number of investment alternatives offered, n, and whether the company requires some of the match to be in company stock are key factors of the share of total contributions in company stock. We cannot reject the hypothesis that participants invest 1/n of their contributions in company stock. In addition, participants do not offset an employer match in company stock with a smaller share of their own contributions to company stock, contrary to efficient diversification. Workers also appear to view other plan restrictions as providing cues about the desirability of purchasing company stock. Thus, plan design is very important in determining the share of 401(k) assets in company stock.

Suggested Citation

Liang, Nellie and Weisbenner, Scott, Investor Behavior and the Purchase of Company Stock in 401(K) Plans - the Importance of Plan Design (2002). FEDS Working Paper No. 2002-36, Available at SSRN: https://ssrn.com/abstract=3886156

Nellie Liang (Contact Author)

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Scott Weisbenner

affiliation not provided to SSRN

No Address Available

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