Company Stock, Market Rationality, and Legal Reform

Some eleven million 401(k) plan participants take a concentrated ,equity position in their retirement savings account, investing more than 20% of the balance in their employer’s common stock. Yet investing in the stock of one’s employer is a risky investment on two counts: single securities are riskier than diversified portfolios (such as mutual funds), and the employee’s human capital is typically positively correlated with the performance of the company. In the worst-case scenario, illustrated by the Enron bankruptcy, workers can lose their jobs and much of their retirement wealth simultaneously. For