{
  "id": "RL31551",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL31551",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 101355,
      "date": "2002-09-04",
      "retrieved": "2016-05-24T20:05:06.745941",
      "title": "Employer Stock in Pension Plans: Economic and Tax Issues",
      "summary": "The loss of retirement assets held in Enron stock by Enron employees has stimulated proposals\nto\nrestrict the holding of employer stock in retirement plans, and other proposals to regulate these plans. \nStock in the Enron plan came from firm contributions in the form of stock that was not allowed to\nbe sold and from voluntary investment by employees. This report focuses on rationales for providing\nemployer retirement plans and for holding (or not holding) employer stock in these plans, both from\nthe perspective of the private sector and of government policy. \n  Retirement plans fall into two types: defined benefit plans, where a pension based on earnings\nand years of service is provided; and defined contribution plans, where individuals receive benefits\nbased on accumulated principal and interest. Either plan can hold employer stock, but holdings are\nlimited to 10% of assets in the case of defined benefit plans. These plans receive tax subsidies, as\ndo employee stock purchase plans and certain types of stock options.\n  The analysis suggests that there are economic reasons that firms and employees may engage in\npension and profit sharing (or stock ownership) plans even in the absence of tax subsidies. Pension\nplans, primarily defined benefit plans, may be attractive for administrative and risk-reduction\nreasons, for dealing with inadequate investment in on-the-job training, and for smoothing the\nretirement of older workers. Stock options and stock ownership plans may be useful for addressing\ninconsistency in objectives between shareholders and managers and worker monitoring problems,\nalthough these benefits are not likely to accrue to stock ownership by the rank and file of large\ncompanies. These employee stock ownership plans may also deter hostile takeovers, which may\nundermine economic efficiency and stockholder interests. Stock contributions are also popular\nbecause they do not reduce cash flow, which has both benefits and costs from an economic efficiency\nperspective.\n  Government subsidies to plans may be justified to increase retirement incomes and access to\nannuities because of a shortfall in optimal savings and certain economic problems with self selection\nin purchasing annuities. These objectives also underlie the justification of Social Security. Pursuing\nthese goals may actually conflict with another worthy objective, on-the-job training. However,\nobjectives that are addressed via employee stock ownership do not appear important in shaping the\nnature of large, broadly-based, retirement plans. Diversification of plan assets and prudent\ninvestment portfolios do appear consistent with rationales for government intervention. \n  Attempts to address this issue might take several forms: restrictions on shares of employer stock\nin plans, prohibiting employer stock contributions or lifting restrictions on sale, denying a tax\ndeduction on employer contributions until they could be sold, and requiring independent investment\nadvice. The last proposal is not costless and could undermine participation for small firms. For\nadministrative and other reasons, it may be rational to impose share restrictions on allocations of\ncontributions, rather than on assets. There are no plans to update this report.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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}