My son contributes 17% into his 401k.  His company matches with 6% of their stock (Sirius -SIRI).  None of his own 17% contribution into the 401k is in the stock, so any SIRI in his total portfolio comes from their 6%.

His SIRI stock now makes up about 15% of his total portfolio which includes other mutual funds in his 401k, his Roth, and taxable accts.

He seems less concerned about SIRI being such a large component than me.  He feels that since it all comes from their "match" and is not his money, he doesn't have to be so worried about it.  After all he's investing in other funds, none of which have SIRI.  If he loses $ from their match, its not terrible....after all he's not putting all his 401k into the stock...its just their match.

I on the other hand, feel that SIRI is too big % of his portfolio, even if it only comes from their match.  I also realize though that in order to lower their match, he'd have to lower his contribution, and I believe that would be the wrong thing to do (he thinks so too).

So am I wrong in thinking the company match is too big, or am I looking at it the wrong way since the SIRI stock only comes from their contribution?  I ask because I had a 403b where there was no company "match" and I was concerned about everything in it since it was all my contribution.

Joel

I would agree the % seems high,  but I'd never refuse free money.  Another angle, I thought all companies in 401k had to provide options other than the company stock.  Check with someone smarter than me concerning the 401 k rules.

The Pension Protection Act allows your son to take the company money (matched money) and move it to any option in the 401k plan. It's quite aggressive by the company to match to their company stock. Many companies have pulled back this practice. But nonetheless, when the matched money goes to stock he can then move to another option. Hope this helps.

I agree that if your son can diversify the company stock into fund options, then he should do so. First off, most experts will say to hold no more than 4-5% in a single stock to avoid single stock uncompensated risk. This is a prudent investment rule that should be observed.

Second, when the stock is linked to employment, the risk gets even higher. The company stock is tightly tied to his job, both of which are tied to higher than average industry risk and the economy. If something happened to the company, he could lose his job and the stock in one swoop. Oh, by the way, there is no 'free money.'

 

Paul 

If you need another argument to help convince your son, point out that he is "doubled down" on the success of Sirius.  On the up side, if Sirius does well, your son does very well (and if a 6% match is now 15% of portfolio, then it has done extremely well to date, or the rest of the portfolio has tanked hard, which could be part of why your son doesn't want to change this allocation).  On the downside, a single bad event could lead to a double whammy of your son losing both his job and 15% of portfolio.  Does the upside match the downside?

Or, use this as an instance for rebalancing: maybe this is a situation to actualize a buy-low-sell-high event, and rebalance the SIRI allocation back to 6% of total portfolio. 

To Kerryvan:

Thanks for answering.

His plan does provide other mutual fund options and he does invests in them.  He does not invest any of his own money in SIRI stock.  The companies match is in SIRI stock, they do not "match" with anything else but the stock. 

Joel

To Derekgaddy:

Thanks for your response.  He's going to check about being able to move some/all of the company "match" money that is in SIRI to one of the other available options.

He believes that money the company matches cannot be moved, but must stay in the SIRI stock (I thought so too, but I don't know too much about 401k's).  You mention the Pension Protection Act allows one to move the "match" money to another option in his 401k.  Do you know the specific rule/law/provision number in the Act that states this, or provide me with a link to it?

I will try to find it on my own, but in case I am unable to find this provision, would appreciate it if you could "lead me" to it.

Thanks again,

Joel

[quote user="phillygoat"]

On the downside, a single bad event could lead to a double whammy of your son losing both his job and 15% of portfolio.

[/quote]

Mopman, 

I would be very concerned.  This happened to me; if possible, don't let it happen to your son. 

 

Regards,

Dave 

Hi Mopman,

The previous posters covered the main points.

I just wanted to add, that I think it is totally wrong to look at this money as "less important" because it is "not his" due to the matching nature of this money.

It is his money just as much as the rest.  It is a perk that is part of his compensation package and not a gift.  Gift or not, its still his money and any decision should be made as such.

IMO, sell it all as soon as he can when he recieves it.  Like others said, his job and future earnings/savings are already linked to the company, why even hold 1% of this stock.   

Good Luck

Brian