Pension Plan Investments in Employer Securities: More Is Not Always Better

Abstract

As various employee benefit arrangements providing for employees' receipt of part of their compensation in the form of employer stock grow in popularity, the desirability of significant investments by employer-sponsored pension plans in employer securities becomes an important public policy issue. In this Article, Professor Stabile suggests a manner in which pension plans' investments in employer securities should be regulated After surveying the current legal regime applicable to the acquisition of employer securities by pension plans and voting and tender decisions with respect to such securities, Professor Stabile analyzes arguments advanced in support of substantial accumulations of employer stock by pension plans and concludes that such arguments are not compelling. She then argues that significant investment in employer securities by pension plans leads to insufficient diversification of employees' retirement portfolios and improves managers' ability to defeat hostile takeovers and shareholder proposals. Professor Stabile concludes that the Employee Retirement Income Security Act of 1974 ("ERISA '), the primary federal statute regulating pension plans, should set the maximum allowable limit on the amount of an employee's assets that may be invested in his employer's stock and on the percentage of an employer's securities that may be held by pension plans maintained by the employer.