The decision marked the end of an era: last month, the keepers of the Dow Jones Industrial Average removed General Electric Co , one of the original stocks included in the index when it was created in 1896. The once-mighty GE had become the sixth-smallest member of the 30-component Dow by market value and carried the index’s lowest stock price. The move by S&P Dow Jones Indices reflected the decline of an American industrial icon. But the company’s plunging stock highlights a problem that refuses to go away: too much concentration of employer stock in workplace retirement plans. More than one-third of GE 401(k) plan assets were held in the company’s own shares in 2016, federal filings show. Just 15 years ago, GE was the world’s most valuable public company. But it has struggled in several of its key industrial markets and suffered losses in the financial services business during the global financial meltdown of 2008. GE stock has fallen nearly 80 percent from highs in 2000, serving up a reminder of the risk of holding your employer’s stock in a retirement account. Changes in federal law have encouraged retirement plans to move away from company stock ownership, and a spate of lawsuits also have helped convince many plan sponsors to reduce or eliminate the practice. Data from Vanguard points to an encouraging trend. In 2017, among all account-holders in defined contribution plans administered by the mutual fund giant, 90 percent had no investments in their employer’s shares, either because it was not offered (76 percent) or they chose not to invest in it (14 percent). Five percent had holdings ranging from 1 percent to 20 percent of their plan assets, and 5 percent had concentrated employee stock positions exceeding 20 percent. The industries still most likely to offer company stock were agriculture/mining and construction (13 percent offered), Vanguard data shows. THE ENRON EFFECT The GE story belies a sharp improvement in diversification by many 401(k) plans over the past decade. As recently as 2007, nearly 25 percent of Vanguard-administered plans had employer stock concentration levels higher than 20 percent. The more recent improvement stems in part from the spectacular 2001 collapse of Enron Corp, which blew away the life savings of thousands of employees holding the company’s stock. The ensuing Pension Protection Act of 2006 required defined contribution plan sponsors to allow participants to diversify holdings away from employer shares, and to notify them of their rights in this area. Most experts say employee retirement portfolios should not hold more than 10 or 15 percent of their employer’s stock. "Since Enron, many employers have decided this isn’t a good thing for employees - that’s the good news,” said Robert Pozen, a senior lecturer at the MIT Sloan School of Management, who recently reviewed federal filings of large retirement plans. (brook.gs/2m5dwUv) “Unfortunately, quite a few companies have continued to not only allow this but essentially encourage it, because they make matching contributions with their own stock as a way to conserve cash,” he said. (GE employees are not required to take matching contributions in company stock, a GE spokeswoman said.) Pozen has no problem with employee stock ownership outside a retirement plan, or stock options. But most employees should hold broadly diversified retirement portfolios, he said. Morningstar research has found that the stock of companies with high allocations of their own stock in a 401(k) plan tended to underperform their peers on a relative performance and risk-adjusted basis. Moreover, Vanguard research shows that concentrated stock positions tend to displace investments in diversified equity funds and other balanced funds. Overall equity allocations also tend to be higher. Another problem is exposing workers to the double risk of potentially losing not only their savings but their jobs. And the GE story underscores the false sense of comfort that can arise among employee investors. "Companies like GE have done very well over many decades, but there are very few that do really well over 30 or 40 years," Pozen said. I asked GE if it has policies or programs in place encouraging diversification. Mary Kate Nevin, manager of financial and executive communications, pointed to language in an employee benefits handbook warning against the risk of having any more than 20 percent of retirement savings in any single company stock, or industry. She also noted that the 401(k) program held more than 250 education sessions with workers last year that also included messages about the importance of diversification. Pozen thinks more will be required. He argues U.S. Congress should take steps to reduce or eliminate this risk by limiting holdings of employer stock to 10 percent of plan assets - the same legal limit that defined benefit plans must follow in their investment portfolios. “You could grandfather existing programs, and tell them that they can no longer increase the percentage of their own stock in the plan,” he said. “It wouldn’t be a dramatic thing, and it would be very positive for plan participants.” (Editing by Matthew Lewis)