Monday, August 28, 2006

No Choice: Have To Keep Company Stocks

My wife has been with her current company for nearly five years and her employer offers a match for the first 6% of her 401(k) contributions. The only catch is the match is given in company stocks in the form a fund. Ever since she joined the company, she maxed out every year and now a sizable amount of her company stocks, while the resets are in Fidelity mutual funds. Last week, when reviewing her portfolio, we found that nearly 22% of her 401(k) is in her company’s stock fund! That’s a very high percentage and could be dangerous in the long term.

So we decided to trim the holding to 5 – 10%. When we tried to exchange the company stock fund to other mutual funds she currently holds, an error message popped up, saying employer sponsored contributions are not eligible for such transactions. Next day, my wife called Fidelity and was told that, according to the current rule, employees have to hold the company match portion before they are 50! That’s more than ten years away and anything could happen to the company during this awfully long period of time. One exception is that portion can be traded if the employee leaves the company. Fidelity also said the rule is currently under review and changes may be made. But nobody knows when that will happen. For now, my wife has to keep her company stocks for a while. A long, long while.

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