March 11, 2020 / 10:21 PM / 4 months ago

UPDATE 1-U.S. oil company workers make big, bad retirement bet: their own stock

 (Adds details about Exxon 401(k) plan)
    By Tim McLaughlin
    BOSTON, March 11 (Reuters) - Employees at the largest U.S.
oil companies have lost around $5 billion in retirement savings
since the end of 2018 because of outsized bets on their own
slumping stock, according to a Reuters analysis of company
disclosures, a trend exacerbated by the recent crash in oil
prices.
    The losses spread across the 401(k) plans of some 66,000
workers underscore the dangers facing employees that do not
diversify their retirement investments. The issue is most
pronounced at big blue-chip corporations that have historically
matched worker retirement contributions in shares and whose
stocks have track records of stable growth.
    "A lot of people think their company's stock is safer than
an index fund," said David Blanchett, head of retirement
research at Morningstar Inc.
    The biggest U.S. oil producers by market cap - Exxon Mobil
Corp, Chevron, ConocoPhillips, EOG
Resources and Occidental Petroleum Corp - held
$44 billion of 401(k) assets for some 66,000 workers at the end
of 2018, 36% of which was made up of company stock, according to
the filings that contain the latest available data.
    By contrast, only about 6% of 401(k) assets held at U.S.
corporations across all industries were invested in company
stock at the end of 2016, according to the Employee Benefit
Research Institute, a nonpartisan group based in Washington.
    The median total return for the five oil companies’ shares,
meanwhile, amounted to negative 44% since the end of 2018, with
a range of negative 22% to negative 77%. That includes losses
after major oil benchmarks on Monday recorded their biggest
one-day percentage drop since 1991 due to a looming price war
between major oil producers Saudi Arabia and Russia.
    The S&P 500 index, by contrast, returned 12% since the end
of 2018.
    Blanchett said the losses were proof that holding big chunks
of company stock in your 401(k) is a bad idea: "It doesn't make
any sense from a household finance perspective."
    He said company stock can easily accumulate in 401(k)
accounts that receive matching contributions in shares, and that
workers tend not to rebalance their portfolios when they get
lopsided. "Ultimately, participants go where they are nudged."
    Many U.S. corporations have taken steps to reduce heavy
exposure to company shares since U.S. energy company Enron's
collapse decimated the retirement accounts of its employees
about 20 years ago, including by offering more diversified
mutual funds and ending the practice of matching in company
shares.
    Chevron, for example, began matching employee retirement
contributions in cash, instead of stock, in 2015 to encourage
better diversification. 
    But workers at Chevron were near the top of the list with
the most lopsided bets on company shares. Chevron's 401(k) plan
held $6.4 billion in company stock at the end of 2018, or 38% of
nearly $17 billion in net assets, disclosures show.
    Chevron spokesman Sean Comey said in an email: "Regular
communications are sent to plan participants about the
importance of investment fund diversification and the risks of
investing in a single stock."     
    At the top of the list, a group of nearly 29,000 Exxon
workers owned $7.6 billion in company stock in Exxon's 401(k)
plan at the end of 2018, accounting for 44% of its $17.5 billion
in total net assets, according to the filings. 
     Exxon stopped matching in company shares in 2006. But
investing in company stock remains one of many investment
options for employees, company spokeswoman Ashley Alemayehu
said.
    The company has warned workers that investing more than 20%
of retirement savings in any one company or industry may not be
proper diversification, according to a February fact sheet
provided online by the company.
    EOG, formerly part of Enron, is the outlier in the group,
with only 3% of 401(k) assets in company stock.
    "We encourage diversification of retirement funds and
employees have ample opportunity to invest in EOG stock outside
their 401K," EOG spokeswoman Kim Ehmer said.
 Company    Market  401(k)  Company  Stock   Total   Active
            cap     net     stock    as %    Return  participant
                    assets           of      since   s
                                     assets  2018    
 Exxon      $177B   $17.5B  $7.6B    44%     -35%    28,929
 Chevron    $152B   $16.9B  $6.4B    38%     -22%    22,064
 Conoco     $37B    $6.7B   $1.2B    19%     -44%    5,562
 Phillips                                            
 EOG        $22B    $0.72B  $0.02B   3%      -56%    2,686
 Oxy        $11B    $2.2B   0.525B   24%     -77%    7,050
 Petroleum                                           
 Top 5      $399B   $44B    $15.8B   36%             66,291
 total                                               
     

    
 (Reporting by Tim McLaughlin; editing by Richard Valdmanis,
Cynthia Osterman and Tom Brown)
  
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