Net Gains: Sell Your Company Stock -- Now

More than 25,000 Gannett Co. employees learned two weeks ago they will begin receiving a higher matching contribution in company stock to their 401(k) accounts.

Sounds like good news, but I have one piece of advice for Gannett employees: Learn how to sell those shares.

That's not a judgment on the outlook of the publisher of USA Today and 84 other daily newspapers. Rather, it's a warning on the dangers of holding too much employer stock in your retirement account. First Enron and, more recently, Bear Stearns highlighted the risks of tying your retirement too closely to the fortunes of the company that employs you.

In less than 18 months, Bearn Stearns shares fell from $172 each to $10 at the time of its late May sale to J.P. Morgan Chase, leaving behind thousands of financially devastated workers.

The recent history of Gannett stock isn't quite that dismal, but its 40 percent price decline this year and a 10-year average annual total return of negative 8 percent is hardly the makings of a secure, comfortable retirement.

That's why workers should not let company stock dominate their 401(k) or other investment accounts. My advice would be to limit company stock to no more than 10 percent of your overall portfolio.

This advice applies whether you receive company shares through a 401(k), an employee stock purchase plan, an employee stock ownership plan or some other means. The advice is all the same.

By all means, make sure you contribute enough of your own pay to qualify for the full match from the company. There's no reason to turn down this "free money," but make sure it does not come to dominate your account.

The most important thing is to know when and how you can exchange company stock for shares in a broadly diversified mutual fund. Before the Enron collapse, many companies forced minimum holding periods on 401(k) stock contributions to discourage employee selling, but those restrictions are less common now.

This advice applies to employees at all companies, not just ones in a struggling industry such as newspapers.

For Gannett employees and other who receive company stock as a matching contribution, it means taking the initiative periodically to sell some of those shares and invest in another offering. Unsure how to do that? Contact the outfit that runs your company's 401(k) or visit its Web site, where such sales frequently can be initiated.

Since Enron, there has been a trend away from company 401(k) plans. Fewer companies use their own shares to match employee contributions, and employees as a whole hold less company stock than they once did, according to researchers.

The human resources consulting firm Hewitt Associates found 23 percent of companies it surveyed in 2007 offered only company stock as a 401(k) match. That was down from 35 percent the previous year.

But many workers still are overweight in company shares. A separate 2006 study by Hewitt Associates showed company stock remained the single largest holding in 401(k) accounts, amounting to 21.6 percent of the average balance.

The Employee Benefits Research Institute reported earlier this year that among those workers with a company-stock option, 7 percent held more than 90 percent of their 401(k) assets in company stock. Those 7 percent are risking financial implosion.

At Gannett, workers have long received a company match on the money they contribute to their retirement savings. Currently, the company matches half of a worker's first 6 percent of compensation. That means a worker earning $50,000 a year who contributed at least 6 percent of his or her salary would receive an annual matching amount of $1,500.

The new formula kicks in 100 percent of the first 5 percent of a worker's salary. The same $50,000 salary will yield an annual matching contribution of $2,500.

Gannett is offering the higher match as it joins the trend away from traditional, defined-benefit pension plans. Looking to cut costs in a brutal time for newspapers, Gannett plans to freeze its pension plan, meaning employees will stop accumulating benefits. The question of whether the enhanced match will be enough to make up for the frozen pension benefits is a whole separate issue.

To those who say the lessons of a struggling industry like newspapers do not apply those who work in healthier ones, I say think again. Allow me to point out the stock performance of four other well known companies whose employees may wish they limited their stock holdings.

General Electric: Once a stock-market darling, this industrial and media giant has suffered a 25-percent stock price decline this year and features a 10-year average annual total return of just 1.8 percent through the end of May. That total return includes the return of dividends.

Home Depot: Employees at the home-improvement chain have experienced a 10-year average annual total return of just 0.6 percent, with the company's stock falling 0.9 percent this year.

Citigroup: This financial services giant boasts a 10-year average annual total return of negative-1.3 percent through May 30, while its stock price is down more than 30 percent this year. Now trading around $19 a share, Citigroup stock is 66 percent off its five-year high of $57.

Microsoft: And what about all those millionaires in Redmond, Wash.? They're not making them like they used to.

Through the end of May, Microsoft's 10-year total return average was just 3.5 percent. Its stock price is down 20 percent this year.

The impact of those kinds of returns on your retirement portfolio can be devastating, particularly if they account for a majority of your savings. The difference between a 2 percent annual return and an 8 percent annual return on $2,500 a year in matching contributions is more than $300,000 in accumulated savings.

That's a difference worth noting. So if you receive company stock as a 401(k) match, learn how to sell.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning ( in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at