Is employer stock an appropriate investment alternative for DC plans? Should there be a limit to the amount of employer stock held in any participant's account?

Employer stock is often an investment option in DC plans, particularly those sponsored by large, publicly traded companies (many of whom offer the DC plan as a supplement to the DB plan). The relief from fiduciary liability provided by Section 404(c) of ERISA is available only if the stock is publicly traded, with sufficient liquidity to allow participants the ability to transfer freely out of that stock and into the more diversified core options provided under the regulation. The safeguards provided to participants by 404(c) should allow many large employers to conclude that employer stock is an appropriate option in a DC plan.
On the other hand, many DC plans that offer employer stock do not meet the conditions of 404(c), particularly the requirement that participants be allowed to move freely into and out of employer stock. In some case the employer contributions, including matching contributions, are made in employer stock and participants cannot redirect those monies to other, more diversified, options. Where such plans are the sole source of employer-provided retirement income, the retirement security of employees may be overly dependent on the fortunes of a single company. More generally, while employer stock constitutes on average about 20% of all DC plan assets, employer stock constitutes over 60% of DC plan assets in certain companies. In those companies, the DC plans are more akin to profit-sharing arrangements than retirement vehicles. The employees in such DC plans are dependent on the company's fortunes not only for their jobs but also for their retirement security.