Everyone knows now that too many people within ten or so years of retirement were way too heavily invested in equities and have seen their 401(k) balances collapse, but the bad news doesn’t stop there. Not only are people invested more heavily in stocks than they should be, but workers continue to put way too much of their portfolio into company stock, despite years of warning from cable TV financial gurus, columnists at investment publications, and financial planners about the dangers of putting all of your eggs in one basket.

The Wall Street Journal reported that in January, for the first time in over seven years, a large group of 401(k) investors put more money into company stock than any other type of investment even when they were pulling money out of other equity investments and putting smaller sums into conservative vehicles such as bond funds.

Why do people think their company isn’t just as vulnerable to the sour economy as any other business? My theory is that it’s a combination of denial and bad advice. It’s easy to understand the first reason: People think that if things were going downhill, they would know about it. Reason number two is about faulty leadership. I once attended a companywide meeting of a former employer where the CEO told everyone that they should put ALL of their 401(k) money into company stock because the future was so bright.

I’m not saying that companies shouldn’t include their own stock as a 401(k) investment option, although that’s a popular idea in certain quarters. After all, owning a piece of the company can breed loyalty and spur performance. And some companies can’t afford to offer a 401(k) match any other way than funding it through company stock. But, as The Journal report points out, employers should help their workers who have heavy concentrations in company stock to diversify and limit such investment. Few companies do this.

As Congress retools the pension system, we may see regulatory actions that require employers to safeguard workers from overexposure to company stock. ###