Tips on Reducing Risk in Retirement Plans

Owning too much company stock in a retirement plan can be hazardous to a worker’s financial health, as employees of Enron and other distressed firms have discovered in recent months. Financial planners recommend the following steps to help reduce risk:

* Try to have no more than 10% to 20% of your total investment portfolio in company stock. This includes 401(k)s, profit-sharing plans and employee stock-purchase programs.

* Monitor your accounts at least twice a year and, if you can, sell off company shares if their value exceeds 20% of your portfolio. (Some employers restrict their workers’ ability to sell shares issued as a company match, but you should be able to sell shares purchased with your own contributions.)

* Many companies that restrict their employees’ ability to sell stock also provide exceptions for employees who reach a certain age, typically 50 or 55. Once you reach that age, be prepared to sell your company stock to reduce your risks as you approach retirement.

* Check any mutual funds you own in retirement accounts to make sure they don’t invest heavily in your company’s stocks or bonds or in securities of companies in the same industry.

* If you’re unable to lower your company stock exposure to acceptable levels, consider reducing your 401(k) contributions and instead investing up to $2,000 a year in an individual retirement account or a Roth IRA. Using these accounts, you can invest in other individual stocks or in diversified mutual funds holding stocks or bonds, although you may not get a tax deduction for your contribution.

* Once you leave a company, you usually can roll your 401(k) balance into an IRA and choose your own investments. Consult a qualified tax professional before making the rollover, however, because company stock can offer special tax advantages when withdrawn from a 401(k) instead of being rolled over into an IRA.