TY - JOUR AU - Brown,Jeffrey R. AU - Liang,Nellie AU - Weisbenner,Scott TI - 401(k) Matching Contributions in Company Stock: Costs and Benefits for Firms and Workers JF - National Bureau of Economic Research Working Paper Series VL - No. 10419 PY - 2004 Y2 - April 2004 UR - http://www.nber.org/papers/w10419 L1 - http://www.nber.org/papers/w10419.pdf N1 - Author contact info: Jeffrey Brown Department of Finance University of Illinois at Urbana-Champaign 515 East Gregory Drive Champaign, IL 61820 Tel: 217/333-3322 E-Mail: brownjr@illinois.edu Nellie Liang Federal Reserve Board 20th and Constitution Ave NW Washington, DC 20551 E-Mail: nliang@frb.gov Scott Weisbenner University of Illinois at Urbana-Champaign Department of Finance 340 Wohlers Hall, MC-706 1206 South Sixth Street Champaign, IL 61820 Tel: 217/333-0872 Fax: 217/244-9867 E-Mail: weisbenn@illinois.edu AB - This paper examines why some employers provide matching contributions to 401(k) plans in company stock and explores the implications of match policy for employee retirement wealth. Unlike stock option grants to non-executives, a firm's decision to match in company stock does not appear to be strongly correlated with cash flow or with measures of the benefits of aligning incentives of employees and employers. Rather, we find evidence that firms are more likely to provide the match in company stock if firm risk is low (i.e. lower stock price volatility and lower bankruptcy risk) and employees are also covered by a defined benefit plan. These findings suggest that firms consider the retirement security of their workers in making the match decision, either because firms want to minimize the risk of violating their fiduciary responsibility or because employees more fully value company stock at companies with lower firm-specific risk. Evidence also indicates that firms may want to match in company stock to boost employee ownership, perhaps to help deter takeovers, or because of the tax advantages for dividends on the company stock match. Simulation results suggest that sufficiently risk-tolerant individuals actually prefer a 401(k) plan at a company with a company stock match to a plan at a company with an unrestricted match, unless the equity premium is reduced substantially. ER -