WSJ: Despite Risks, Workers Guzzle Company Stock in 401ks

I thought the situation at Enron cleansed people of this situation but it appears many folks are making the same mistake of loading their 401ks with company stock, along with tying their jobs to the same company. I assume most people believe they know more about their company than what is in a typical mutual fund - otherwise I don't really understand why this is done unless companies are promising a larger match if workers invest directly in stock. Yet another weakness with the 401k plan. While I don't condone government stepping in to this sort of thing, until (when/if) the vast majority of Americans are financially literate there should be some limit on how much people can "gamble" on their own stock (maybe 20% max). I'm sure people at Bear Stearns, Lehman Brothers, Fannie Mae and the like would of approved of this sort of rule. Via the Wall Street Journal

• At a time of extreme market uncertainty, many 401(k) participants are making a risky move: loading up on the stock of their employers. In January, for the first time in more than seven years, a large group of 401(k) participants tracked by consulting firm Hewitt Associates plowed more money into company stock than any other type of investment.
• Employees' enthusiasm for company stock marks a sharp reversal of recent trends. Workers have generally been diversifying out of their employer's shares this decade as Enron, WorldCom and other high-profile corporate blowups exposed the dangers of hefty company-stock holdings.
• Participants added money to company stock in only eight months during the past six years, according to Hewitt -- yet five of those months have come since the middle of last year. "In this economy, you'd expect people to move in the other direction, trying to diversify their risks," says Pamela Hess, director of retirement research at Hewitt.
• Workers stuffing their retirement accounts with company stock are making a tremendous bet on the health of their employer. If the company stumbles, workers could lose their retirement savings, as well as their jobs. Just in the past year, stock-price meltdowns at Lehman Brothers Holdings Inc., Fannie Mae and other companies have crushed the retirement savings of many employees who were heavily invested in those shares.
• People may be turning to company stock now because the old familiar employer shares seem to be a haven in the market storm. Academic research has found that most employees holding company stock believe it's safer than a diversified stock fund. "Obviously, they're not understanding what they're buying," says Shlomo Benartzi, a behavioral economics professor at the University of California, Los Angeles.
• Company stock remains widely available in retirement plans. Nearly two-thirds of workers in 401(k) plans with more than 5,000 participants were offered employer stock as an investment option in 2007, according to Employee Benefit Research Institute and the Investment Company Institute, a trade group. About 8% of participants in plans that offer company stock had more than 80% of their account invested in employer shares. (oye!)
• Some workers are shrugging off the risks of company stock even as the market appears more and more perilous. Jack Bennett, 58 years old, of Brick, N.J., was generally a buy-and-hold investor until about a year ago. But as he saw the market stumbling badly, he began to make large trades in and out of the stock of his employer, General Electric Co., at times putting about 90% of his 401(k) into the shares. (everyone's a daytrader now! buy and hold? So old school) Many of Mr. Bennett's fellow employees who held GE shares were likely far less fortunate. The stock has plunged 80% over the past 12 months, closing Wednesday at $6.69, dealing a heavy blow to investors who followed a more traditional buy-and-hold strategy.
• At some companies, the economic downturn means employees will be getting more employer shares in their retirement accounts. In an effort to conserve cash, International Paper Co. this month began making 401(k) matching contributions in company stock rather than cash, says Robert Hunkeler, the company's vice president for investments. (not good) Workers can immediately move the money to other investments if they choose. Yet workers rarely take advantage of opportunities to diversify out of company stock, retirement experts say.

Just another step down the road of ruin for many as the 401k plan is exposed as a poor replacement for pensions for the vast majority.