Remember no matter strong your company is the unexpected can happen at any time. If you have a majority of your retiremeint savings in your company stock, if something does happen you lose both your job and your savings. The most prudent strategy is to globally diversify and rebalance.

“Companies that look great today may not look great tomorrow,” Weeks says. “It is better for participants not to be overexposed in their retirement plans to company stock.”The 2001 Enron collapse showed how retirement assets can disappear virtually overnight. The energy giant matched employee contributions in stock and barred employees from divesting until turning 50. When the Houston company’s unethical accounting practices were revealed, Enron shareholders—many of whom were workers with retirement accounts—lost billions of dollars.

As a result, Congress made changes to federal law. Now it’s easier for participants to sell company stock and to be more diversified. A 2006 law requires plan sponsors to notify participants holding 20 percent or more of one asset that their retirement plan my not have enough of a mix to manage investment risk.

While the law also allows plan sponsors to limit the amount of company stock employees can hold in their 401(k) accounts, many in the industry would like to see these shares gone altogether.

“You should never have undiversified risk in your portfolio. Holding any single security is way too risky,” says Robyn Credico, defined contribution practice leader at Towers Watson & Co. in Arlington, Virginia. “And in putting a cap [on company shares] doesn’t get rid of the risk, it only limits the extent of the liability.”

Steve Clark, treasurer for South Jersey Industries Inc. agrees, but has had a hard time moving participants out of the Folsom, New Jersey-based utility company shares. The company’s 401(k) plan was originally a thrift plan in which participants invested in company shares and treasury bonds. Today, there are 18 investment options, but few workers who started with the thrift plan have moved out of company stock. Nearly 77 percent of the net assets of the $139 million plan are in company shares, BrightScope 2010 data show.

South Jersey Industries’ match is in cash—not company stock—and participants are required to attend financial education seminars. Those with three or fewer investments are given additional education, focusing on managing risk by improving asset allocation.

“The concentration [of company stock] is a topic of every trust meeting we have,” Clark says. “We don’t think it’s appropriate to force investment decisions, but it is very, very important to continually educate participants.”

The stock itself is giving participants very little reason to sell. South Jersey Industries’ stock has outperformed the Dow Jones Industrial Average and Standard & Poor’s 500 stock index for 10-year and five-year returns. It has mostly outperformed three- and one-year averages as well. For this year, the stock price is up 9.61 percent as of Aug. 7.

Although loyalty to your company is admirable it is also very dangerous.

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