401(k) Pension Plans: Extent of Plans' Investments in Employer Securities
and Real Property (Letter Report, 11/28/97, GAO/HEHS-98-28).

Pursuant to a congressional request, GAO provided information on: (1)
the extent to which 401(k) plan assets are invested in employer
securities and real property; (2) the protection and any possible
problems associated with the recent amendments to title I of the
Employee Retirement Income Security Act of 1974 (ERISA); and (3)
alternate mechanisms that might safeguard the retirement benefits of
participants in 401(k) plans in which the employer decides how to invest
assets.

GAO noted that: (1) only 2,449 of about 160,000 401(k) plans owned
employer securities or real property in 1993; (2) these plans owned $53
billion of employer securities and real property and covered 5.3 million
plan participants; (3) in most of these plans, plan participants
directed the investment of their own contributions; (4) plans for which
the employer solely decided how to invest assets totalled 756; (5) in
these plans, employees exercised no control over how their 401(k) plan
assets were invested and the employer made all the investment decisions;
(6) these plans covered 1.4 million participants and had $12.3 billion
invested in employer securities and real property; (7) in August 1997,
the Congress amended title I of ERISA to provide that not more than 10
percent of employee contributions be invested in employer securities and
real property by defined contribution 401(k) plans requiring that
employee contributions be invested in this way; (8) this change
increases protection for 401(k) plan participants; (9) the 10-percent
limitation rule alone does not, however, prevent plans from investing
employee contributions in employer securities and real property whose
value is declining; (10) some of the information needed to implement and
enforce the new legislation is not readily available; (11) proposed
changes to the Department of Labor's Form 5500, if implemented, may
remedy some of the data deficiencies; (12) other mechanisms are
available to policymakers if alternate safeguards are needed in the
future; and (13) these mechanisms include enhanced reporting and
disclosure, prescribed education programs, adoption of the
diversification requirement used for employee stock option ownership
plans, and use of independent fiduciaries to examine investment
decisions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-28
     TITLE:  401(k) Pension Plans: Extent of Plans' Investments in 
             Employer Securities and Real Property
      DATE:  11/28/97
   SUBJECT:  Retirement pensions
             Employee retirement plans
             Retirement benefits
             Investments
             Funds management
             Bankruptcy
             Securities
             Real property
IDENTIFIER:  DOL Form 5500 Data Base
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Ways and Means, House of
Representatives

November 1997

401(K) PENSION PLANS - EXTENT OF
PLANS' INVESTMENTS IN EMPLOYER
SECURITIES AND REAL PROPERTY

GAO/HEHS-98-28

401(k) Plan Investments

(207445)


Abbreviations
=============================================================== ABBREV

  BLS - Bureau of Labor Statistics
  ERISA - Employee Retirement Income Security Act of 1974
  ESOP - employee stock ownership plan
  IRS - Internal Revenue Service
  PBGC - Pension Benefit Guaranty Corporation
  PWBA - Pension and Welfare Benefits Administration
  SAR - summary annual report

Letter
=============================================================== LETTER


B-276106

November 28, 1997

The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives

Dear Mr.  Chairman: 

Policymakers and the pension community are concerned about 401(k)
plans--tax-deferred individual retirement benefit accounts--in which
decisions regarding how to invest plan assets, particularly employee
contributions, are made exclusively by employers.  This concern was
prompted mainly by two cases in which employers invested a large
portion of the 401(k) plan assets in their companys' securities or
real property.\1 Subsequent business reversals then forced the
employers into bankruptcy reorganization or liquidation.  In one
case, employees lost their jobs and almost all their pension benefits
because the value of the employer's securities decreased
significantly.  The other case, involving real property, is still in
bankruptcy liquidation, and the final effect on pension benefits is
unknown. 

Concerns about the loss of jobs and retirement benefits prompted your
office to ask us to (1) provide information on the extent to which
401(k) plan assets are invested in employer securities and real
property, (2) examine the protection and any possible problems
associated with the recent amendments to title I of the Employee
Retirement Income Security Act of 1974 (ERISA), and (3) identify
alternate mechanisms that might safeguard the retirement benefits of
participants in 401(k) plans in which the employer decides how to
invest assets. 

To determine the extent to which the assets of 401(k) plans were
invested in employer securities and real property, we analyzed the
Form 5500 database maintained by the Department of Labor's Pension
and Welfare Benefits Administration (PWBA).  Under ERISA, employers
have to file a Form 5500 annually to report certain financial,
participant, and actuarial data for each of their pension plans.  We
analyzed data for plan year 1993,\2 which was the most recent year
for which final plan-specific data were available for our review.  To
examine the protections provided by and any possible problems
associated with the recent amendments to ERISA, we discussed the
amendments with officials of the Departments of Labor and the
Treasury developed a model to measure the extent of protection
offered by a 10-percent limitation on the use of employee
contributions to purchase employer securities and real property, and
examined Form 5500 data.  To determine what alternate mechanisms
could be considered to safeguard plan participants in
employer-directed 401(k) plans, we identified strategies that already
are authorized by federal law and identified mechanisms that experts
suggested.  We performed our review in Washington, D.C., from
November 1996 through September 1997 in accordance with generally
accepted government auditing standards.  (See app.  I for details on
our scope and methodology.)


--------------------
\1 Real property acquired by the plan and leased to an employer of
employees covered by the plan or to an affiliate of such employer. 

\2 Plan year refers to the calendar, policy, or fiscal year for which
the records of the plan are kept.  All years cited in this report are
plan years; 1993 forms were filed for plan years beginning in
calendar year 1993. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Only 2,449 of about 160,000 401(k) plans owned employer securities or
real property in 1993.  Collectively, these plans owned $53 billion
of employer securities and real property and covered 5.3 million plan
participants.  In most of these plans, plan participants directed the
investment of their own contributions.  Plans for which the employer
solely decided how to invest assets totaled 756.  In these plans,
employees exercised no control over how their 401(k) plan assets were
invested; the employer made all the investment decisions.  These
plans covered 1.4 million participants and had $12.3 billion invested
in employer securities and real property. 

In August 1997, the Congress amended title I of ERISA to provide that
not more than 10 percent of employee contributions be invested in
employer securities and real property by defined contribution 401(k)
plans requiring that employee contributions be invested in this
way.\3 This change increases protection for 401(k) plan participants. 
The 10-percent limitation rule alone does not, however, prevent plans
from investing employee contributions in employer securities and real
property whose value is declining.  In addition, some of the
information needed to implement and enforce the new legislation is
not readily available.  Proposed changes to the Form 5500, if
implemented, may remedy some of the data deficiencies. 

Other mechanisms are available to policymakers if alternate
safeguards are needed in the future.  These mechanisms include
enhanced reporting and disclosure, prescribed education programs,
adoption of the diversification requirement used for employee stock
ownership plans (ESOP), and use of independent fiduciaries to examine
investment decisions. 


--------------------
\3 The amendment provides that unless one of three exemptions is met,
not more than 10 percent of employees' contributions and the earnings
thereon may be invested in employer securities and real property. 
The ERISA 10-percent limitation rule for employer-directed 401(k)
plans becomes effective in 1999. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Employers provide retirement benefits using two basic types of
plans--
defined benefit plans and defined contribution plans.  In a defined
benefit plan, the employer determines the employee's retirement
benefit amount using specific formulas that consider factors such as
age at retirement, years of service, and salary levels.  Employers
are responsible for ensuring that sufficient funds are available to
pay promised benefits.  The amount an employer must contribute to a
defined benefit plan varies from year to year depending on changes in
factors such as workforce demographics or investment earnings. 
Employees covered by a defined benefit plan are also protected by a
federal plan termination insurance program administered by the
Pension Benefit Guaranty Corporation (PBGC). 

In a defined contribution plan (also known as an individual account
plan), the employer establishes an individual account for each
eligible employee and generally promises to make a specified
contribution to that account each year.  Employee contributions are
sometimes allowed or required.  Each defined contribution plan
specifies whether the plan participants, the employer, or both will
make decisions about how the funds in the accounts are invested. 
Regardless of who makes the investment decisions in a defined
contribution plan, the employer is not responsible for ensuring that
a specified amount is available upon an employee's retirement.  An
employee's retirement benefit from such a plan depends on the total
employer and employee contributions to the account as well as the
investment returns that have accumulated in the account by the time
the employee retires.  In a defined contribution plan, the employee
assumes the risk for the investments. 

Defined contribution plans include thrift savings plans,
profit-sharing plans, and ESOPs.  Such plans that allow employees to
choose to contribute a portion of their pre-tax compensation to the
plan under section 401(k) of the Internal Revenue Code are generally
referred to as 401(k) plans.  Investment income earned on a 401(k)
plan accumulates tax free until an individual withdraws the funds. 

Table 1 shows the number of plans, plan assets, and plan participants
for 1993 for single-employer defined benefit and defined contribution
plans. 



                          Table 1
          
            Single-Employer Defined Benefit and
              Defined Contribution Plans, 1993

                     Number of        Assets  Participants
Type of plan             plans    (billions)  (millions)\a
----------------  ------------  ------------  ------------
Defined benefit         69,888      $1,017.0          31.7
 plans

Defined contribution plans
----------------------------------------------------------
ESOP                     8,054         199.6           7.0
401(k)                 159,196         492.1          20.4
Other                  397,142         296.2           9.2
==========================================================
Total\b                634,280      $2,005.0          68.4
----------------------------------------------------------
\a Includes double counting of participants who are in more than one
plan. 

\b Because of rounding, sums of individual items may not equal
totals. 

ERISA imposes certain requirements and restrictions on those who
manage and administer private pension plans.  These fiduciary rules
apply to both defined benefit and defined contribution plans and
require, among other things, that plans diversify their investments
and, more specifically, invest no more than 10 percent of total plan
assets in employer securities and real property.  Currently, ERISA
exempts 401(k) plans from the diversification requirement and the
10-percent limitation rule.  Accordingly, 401(k) plans can invest in
employer securities and real property generally without restriction. 
(See app.  II for more details on federal fiduciary rules on
investment of plan assets.)

In August 1997, the Congress amended title I of ERISA to protect plan
participants in 401(k) plans that require that employee contributions
be invested in employer securities and real property.  Section 1524
of the Taxpayer Relief Act of 1997, which takes effect in 1999, will
extend the ERISA 10-percent limitation rule on investments in
employer securities and real property to that portion of these 401(k)
plans consisting of employee contributions and the earnings thereon
unless they meet one of three exemptions.  A 401(k) plan is exempt if
the fair market value of the assets of all the defined contribution
plans the employer maintains is no more than 10 percent of the fair
market value of the assets of all the employer's pension plans.  A
401(k) plan is also exempt if it requires that not more than 1
percent of an employee's compensation be invested in employer
securities and real property.  Finally, ESOPs are exempt. 


   RELATIVELY FEW 401(K) PLANS
   INVESTED IN EMPLOYER SECURITIES
   AND REAL PROPERTY
------------------------------------------------------------ Letter :3

Less than 2 percent of 401(k) plans invested in employer securities
and real property in 1993.  Because many of the 401(k) plans that
owned employer securities and real property were large plans,
however, the number of participants covered and the value of employer
securities and real property were substantial.  Participant-directed
plans had about 3.9 million participants and about $40.7 billion in
employer securities and real property.  Employer-directed plans
covered 1.4 million participants and had $12.3 billion invested in
employer securities and real property. 


      LARGE 401(K) PLANS OWNED
      MOST OF THE EMPLOYER
      SECURITIES AND REAL PROPERTY
---------------------------------------------------------- Letter :3.1

Only 2,449 of the 159,196 401(k) plans that filed a Form 5500 for
1993 reported that they had invested in employer securities or real
property.  As shown in table 2, a relatively few large 401(k) plans
owned most of the employer securities and real property.  In this
regard, 109 plans with 10,000 or more participants owned over $34
billion (nearly 65 percent) of the $53 billion of employer securities
and real property owned by all 401(k) plans.  These large plans also
covered most of the participants in 401(k) plans that owned any
employer securities or real property.  Plans with more than 10,000
participants covered 57 percent of participants.  Plans with 1,000 or
more participants covered 92 percent of the participants and owned 95
percent of employer securities and real property. 



                                         Table 2
                         
                           401(k) Plan Investments in Employer
                           Securities and Real Property by Plan
                                        Size, 1993

                                                    Assets of                Participants
                                      Number of  401(k) plans     Amount of     in 401(k)
                                   401(k) plans    that owned      employer    plans that
                                     that owned      employer    securities         owned
                                       employer    securities      and real      employer
Plan size (based on                  securities      and real      property    securities
number of               Number of      and real      property         owned      and real
participants)        401(k) plans      property    (billions)    (billions)      property
-------------------  ------------  ------------  ------------  ------------  ------------
Less than 100             135,324           726          $1.0           $.3        32,242
100-249                    13,900           428           1.7            .4        71,882
250-499                     4,843           292           2.1            .6       106,696
500-999                     2,410           281           4.9           1.3       201,141
1,000-4,999                 2,236           509          28.6           8.7     1,120,657
5,000-9,999                   277           104          24.1           7.4       746,617
10,000 or more                206           109         113.4          34.2     2,989,124
=========================================================================================
Total                     159,196         2,449        $175.8         $53.0     5,268,359
-----------------------------------------------------------------------------------------
Note:  Because of rounding, sums of individual items may not equal
totals. 

Because of the influence of large plans, the $53 billion of employer
securities and real property owned represented about 11 percent of
all 401(k) plan assets, and the 5.3 million participants represented
almost 26 percent of the participants in all 401(k) plans.  (See fig. 
1.)

   Figure 1:  Investments by
   401(k) Plans in Employer
   Securities and Real Property,
   1993

   (See figure in printed
   edition.)

Employer real property investments represented only $381 million
(less than 1 percent) of the $53 billion in employer securities and
real property owned by 401(k) plans.  Eleven large 401(k) plans\4
owned employer real property in 1993.  Individual plan holdings
ranged from a low of about $4,000 to approximately $340 million;
however, two plans owned 96 percent of the employer real property. 
These two plans collectively owned about $365 million of employer
real property, with separate holdings of $340 million and $25
million.  For these two plans, employer real property represented 56
and 87 percent of their plan assets, respectively.  For the other
nine plans, employer real property generally represented 15 percent
or less of total plan assets. 

One possible reason for the relatively low number of 401(k) plans
that owned employer securities and real property is that many plans
may not allow such investments.  Periodically, the Bureau of Labor
Statistics (BLS) conducts a survey of private nonfarm establishments
with 100 or more workers and develops information on the types of
investments that pension plans may make.  BLS estimates that 49
percent of employees in thrift savings plans (which BLS officials
said are a proxy for 401(k) plans) were in plans in 1993 that
permitted ownership of employer securities.\5 Another reason may be
that many employers sponsoring 401(k) plans are too small to issue
their own company securities. 


--------------------
\4 These are plans with 100 or more participants.  Plans with fewer
than 100 participants do not report employer security and real
property investments separately. 

\5 Employee Benefits in Medium and Large Private Establishment, U.S. 
Department of Labor, BLS, (Washington, D.C.:  Nov.  1994). 


      MOST 401(K) PLAN
      PARTICIPANTS DIRECTED
      INVESTMENT OF THEIR OWN
      CONTRIBUTIONS
---------------------------------------------------------- Letter :3.2

Important to the issue of the need for protections for 401(k) plan
investments are the number of 401(k) plans that are employer directed
and the number of participants in those plans.  In an
employer-directed plan, the employer--rather than the plan
participant--decides how to invest participant contributions as well
as the company's own matching contributions, if any.  In a
participant-directed plan, the participant determines how to invest
his or her contributions and may also determine how to invest the
employer's matching contributions.  Information on employer-directed
plans is important because it indicates the maximum number of
individuals with no control over the investment decisions affecting
their 401(k) plan assets.  These individuals may be vulnerable to
their employers' investing significant amounts of their 401(k) plan
assets in employer securities or real property. 

Form 5500 filings for 1993 indicate that about 35 percent of the
159,196 401(k) plans were employer directed.  These plans, which
totaled 55,411, accounted for about 27 percent of the participants
and 27 percent of the assets of all 401(k) plans.  The remaining
103,785 plans were participant directed and accounted for 73 percent
of the participants and 73 percent of the assets of all 401(k)
plans.\6,7 (See table 3.)



                          Table 3
          
            Number of Participants and Assets in
             Employer-Directed and Participant-
                Directed 401(k) Plans, 1993

Type of 401(k)       Number of  Participants        Assets
plan                     plans    (millions)    (billions)
----------------  ------------  ------------  ------------
Employer-               55,411           5.6        $133.8
 directed
Participant-           103,785          14.8         358.3
 directed
==========================================================
Total                  159,196          20.4        $492.1
----------------------------------------------------------
Although each of the employer-directed plans could theoretically have
invested in employer securities and real property in 1993, only 756
plans (1.4 percent) actually did so.  Because some of these 756 plans
were large plans, they covered a disproportionately high percentage
(25 percent) of all participants in employer-directed plans.  In
total, these plans had 1.4 million participants and $12.3 billion
invested in employer securities and real property. 

About the same proportion of participant-directed plans invested in
employer securities and real property.  In total, 1,693 of 103,785
participant-directed plans (1.6 percent) owned this type of asset. 
Again, because some of these plans were large, they represented a
much larger percentage (26 percent) of participants in
participant-directed plans.  These plans had 3.9 million participants
and $40.7 billion invested in employer securities and real property. 
(See table 4.)



                          Table 4
          
             Employer-Directed and Participant-
             Directed 401(k) Plans Investing in
           Employer Securities and Real Property,
                            1993

             Number of               Amount of
            plans that                employer
                 owned              securities
              employer                and real
Type of     securities  Participan    property
401(k)        and real          ts       owned      Median
plan          property  (millions)  (billions)      amount
----------  ----------  ----------  ----------  ----------
Employer-          756         1.4       $12.3    $599,612
 directed
Participan       1,693         3.9        40.7     873,231
 t-
 directed
==========================================================
Total            2,449         5.3       $53.0         Not
                                                applicable
----------------------------------------------------------

--------------------
\6 The number of participants in participant-directed plans may have
been larger than that reported by filers of the Form 5500.  A BLS
survey of employee benefit plans indicates that in 1993 86 percent of
employees were at establishments that have participant-directed
plans, a somewhat higher percentage than the 73 percent indicated by
filers of the Form 5500.

\7 As part of this review, we also obtained information from IRS on
401(k) plans that became effective in 1994 and 1995.  An analysis of
these data shows that most 401(k) plans established in those years
were participant-directed plans.  Of the 45,993 401(k) plans
established in 1994 and 1995, 33,951 (or 74 percent) were participant
directed. 


      MOST EMPLOYER-RELATED
      INVESTMENTS ASSOCIATED WITH
      SUPPLEMENTAL 401(K) PLANS
---------------------------------------------------------- Letter :3.3

Also important to the issue of the need for additional protections
for 401(k) investments is whether a plan is the primary retirement
plan or a supplemental one offered by the employer to eligible
employees.\8 A supplemental plan provides income in addition to that
provided by a primary plan but may nonetheless represent a
significant portion of an individual's total retirement income. 

Form 5500 filings for 1993 indicate that the number of primary and
supplemental 401(k) plans that actually owned employer securities and
real property was roughly the same.  Of the total of 2,449 401(k)
plans, 1,302 (or 53 percent) were primary plans and the remaining
1,147 (or 47 percent) were supplemental plans.  The 1,147
supplemental plans, however, owned 90 percent of all employer
securities and real property and covered 81 percent of the
participants in 401(k) plans that owned this type of asset.  (See
table 5.)



                                     Table 5
                     
                       Primary and Supplemental 401(k) Plan
                      Investments in Employer Securities and
                               Real Property, 1993

                                        Participants
                             Number of      in plans     Amount of
                            plans that    that owned      employer
                                 owned      employer    securities
                              employer    securities      and real
Type of                     securities      and real      property
401(k)         Number of      and real      property         owned        Median
plan               plans      property    (millions)    (billions)  amount owned
----------  ------------  ------------  ------------  ------------  ------------
Primary          137,152         1,302           1.0          $5.4      $320,861
Supplement        22,044         1,147           4.3          47.5     2,615,086
 al
================================================================================
Total            159,196         2,449           5.3         $53.0           Not
                                                                      applicable
--------------------------------------------------------------------------------
Note:  Because of rounding, sums of individual items may not equal
totals. 


--------------------
\8 PWBA uses a computer program to analyze and classify pension plans
as either primary or supplemental.  A 401(k) plan is primary if (1)
it is the only plan provided by the sponsor; (2) it is one of two or
more identical 401(k) plans provided by the sponsor and 401(k) plans
are the only type of plan provided; (3) the sponsor provides a 401(k)
plan and other defined contribution plans, but the 401(k) plan covers
more participants than any of the others; or (4) the sponsor provides
a 401(k) plan and a defined benefit plan, but the name of the defined
benefit plan indicates it is a supplemental or past service plan. 
PWBA classifies a 401(k) plan as a supplemental plan if the employer
provides another defined contribution plan covering more participants
or the sponsor provides a defined benefit plan whose name does not
indicate a supplemental or past service plan. 


      INVESTMENT IN EMPLOYER
      SECURITIES AND REAL PROPERTY
      GENERALLY 10 PERCENT OR MORE
      OF
      PLAN ASSETS
---------------------------------------------------------- Letter :3.4

Of the 2,449 plans that invested in employer securities and real
property in 1993, 1,679 (69 percent) had 10 percent or more of their
assets invested in this type of asset.  These 1,679 plans included
1,211 that had between 10 and 50 percent of assets invested in
employer securities and real property and 468 that had 50 percent or
more invested this way.  (See table 6.)



                                Table 6
                
                  401(k) Plan Investments in Employer
                    Securities and Real Property by
                 Percentage of Plan Assets Invested in
                           Such Assets, 1993

                                                                 Total
                                                           invested in
                                                              employer
                                                            securities
Percentage of plan assets                                     and real
invested in employer             Number of  Participants      property
securities and real property         plans    (millions)    (billions)
----------------------------  ------------  ------------  ------------
Less than 10                           770           1.3          $2.5
10-29                                  746           1.8          10.7
30-49                                  465           1.1          16.9
50-69                                  217            .5          11.5
70-89                                  156            .4           9.6
90-100                                  95            .1           1.8
======================================================================
Total                                2,449           5.3         $53.0
----------------------------------------------------------------------
Note:  Because of rounding, sums of individual items may not equal
totals. 

As table 6 illustrates, plans that had smaller percentages of assets
invested in employer securities and real property had the most
participants.  Fifty-nine percent of the participants were in 401(k)
plans that had less than 30 percent of their assets invested in
employer securities and real property; almost 81 percent were in
plans that had less than 50 percent invested this way. 

Plan size appeared to relate somewhat to the percentage of plan
assets invested in employer securities and real property.  Plans with
fewer than 100 participants and plans with over 5,000 participants
tended to invest a higher percentage of their total assets in
employer securities and real property.  The percentage of the plans'
assets invested in employer-related assets, however, generally did
not exceed 30 percent of total plan assets.  (See app.  III for more
information on investment in employer securities and real property by
different sized plans.)


      MANY PARTICIPANTS HAVE NO
      CONTROL OVER INVESTMENTS IN
      EMPLOYER-DIRECTED PLANS
---------------------------------------------------------- Letter :3.5

Despite the concentration of participants and employer securities and
real property in participant-directed supplemental plans, 756
employer-
directed plans in 1993 had almost 1.4 million participants and about
$12.3 billion invested in employer securities and real property. 
Participants in these plans reportedly had no choice in how the
assets of their 401(k) plans, including their own contributions, were
invested.  Over 932,000 of these individuals had 10 percent or more
of their 401(k) plan assets invested in employer securities or real
property.  (See fig.  2.)

   Figure 2:  Characteristics of
   401(k) Plan Investments in
   Employer Securities and Real
   Property, 1993

   (See figure in printed
   edition.)


   NEW LEGISLATION WILL PROVIDE
   ADDITIONAL PROTECTION, BUT
   ADMINISTRATIVE PROBLEMS EXIST
------------------------------------------------------------ Letter :4

Enacting section 1524 of the Taxpayer Relief Act of 1997 was one of
several actions that the Congress could have chosen to help safeguard
the assets of participants in 401(k) plans requiring employee
contributions to be invested in employer securities and real
property.  With enactment of this legislation, beginning in 1999, the
provisions of the ERISA 10-percent limitation rule (which, before the
Congress passed section 1524, applied only to defined benefit plans)
will be applied to that portion of employer-
directed 401(k) plans consisting of employee contributions and the
earnings thereon unless the plans meet one of three exemptions.  The
new legislation will prevent employer-directed plans that have more
than 10 percent of employee contributions invested in employer
securities and real property from investing more employee
contributions in assets of this type. 

The 10-percent limitation rule alone, however, cannot prevent a plan
from investing employee contributions in employer securities and real
property whose value is declining.  In addition, certain information
needed to implement and enforce the section 1524 provisions is not
readily available.  Changes have been proposed to the Form 5500,\9
which, if implemented, may remedy some of the data deficiencies we
identified before section 1524 goes into effect in 1999. 


--------------------
\9 Federal Register, Sept.  3, 1997. 


      ERISA 10-PERCENT LIMITATION
      RULE CANNOT ALWAYS PROTECT
      PARTICIPANTS
---------------------------------------------------------- Letter :4.1

As has always been the case with defined benefit plans, the
10-percent limitation rule alone cannot always protect plan
participants.  All defined benefit plans that rely on the 10-percent
limitation rule for protection also have to use other federal ERISA
fiduciary rules, such as the diversification, prudent man, and
exclusive benefit rules to protect plan participants.  (See app. 
II.)

Participants in employer-directed 401(k) plans with employer
securities and real property investments at or near 10 percent of
employee contributions and the earnings thereon are theoretically
vulnerable to employers' further investment in such assets.  For
illustrative purposes, assume that a plan in which the employer
directs the investment of both the employee and employer
contributions has 10 percent of employee contributions invested in
employer securities.  If the value of those employer securities
declines to less than 10 percent of employee contributions, the
employer may use employee contributions to buy additional employer
securities until the 10-percent limit is once again reached. 

This situation occurs when employer securities underperform compared
with other assets in which employee contributions are invested.  More
specifically, additional employee contributions can be invested in
employer securities when (1) the value of employer securities
declines and other plan investments increase or remain constant, (2)
the value of other plan investments appreciates and the value of
employer securities appreciates less or does not change, or (3) other
investments decline and the value of employer securities and real
property declines more. 

In each of these cases, if the value of employer securities falls
significantly below 10 percent of employee contributions, all new
employee contributions could be invested in declining, nonperforming,
or underperforming employer securities or real property.  When the
value of employer securities declines significantly compared with
other nonemployer securities and real property plan investments,
other securities in which employee contributions are invested could
be sold to generate funds to buy employer securities.  In such
instances, however, these actions may be subject to review under the
exclusive benefit or prudent man fiduciary rules. 


      EMPLOYER-DIRECTED PLANS
      CANNOT BE IDENTIFIED WITH
      CERTAINTY
---------------------------------------------------------- Letter :4.2

Section 1524 provisions apply to plans in which the employer requires
employee contributions to be invested in employer securities or real
property.  The information currently provided on the Form 5500,
however, is not reliable enough to identify such plans with
certainty. 

The current Form 5500 has a section in which the filer enters a code
to indicate that the plan is participant directed.  If a filer does
not enter the code, the plan is considered to be an employer-directed
plan.  According to the Form 5500 instructions, a
participant-directed plan is "a pension plan that provides for
individual accounts and permits a participant or beneficiary to
exercise independent control over the assets in his or her account
(see ERISA section 404(c)."\10 PWBA officials told us that they
believe some filers were not completing this section because the
filers were misinterpreting the Form 5500 instructions.  That is,
filers of plans other than 404(c) plans were not sure if they should
complete this section.  Therefore, some participant-directed plans
were incorrectly classified as employer directed (the default if the
section is not completed).  Even when the filer completes the
section, the form provides no way of indicating whether the
participants direct the investment of employee contributions,
employer contributions, or both. 

Revisions proposed to Form 5500 by officials of the Departments of
Labor and the Treasury and of PBGC have three "feature codes" to
better identify participant- and employer-directed 401(k) plans. 
These three codes will allow PWBA to more accurately determine which
plans are employer directed or participant directed and what portion
of the account the participants control. 


--------------------
\10 Section 404(c) of title I of ERISA and 29 CFR subsection
2550.404c-1 prescribe certain requirements for an individual account
plan in which the plan participant or beneficiary exercises
investment control over the account's assets.  The regulation
mandates disclosure of such items as a description of investment
alternatives, designated investment managers, a description of
transaction fees, and other information. 


      EXEMPTIONS CANNOT BE
      VERIFIED
---------------------------------------------------------- Letter :4.3

An employer-directed 401(k) plan is exempt from the section 1524
amendments if the fair market value of all the assets of the
individual account plans the employer maintains is not more than 10
percent of the fair market value of the assets of all the employer's
pension plans.  Under ERISA, the term "employer" means the employer
sponsoring the plan and all the members of any controlled group of
corporations to which the employer belongs.  ERISA defines a
controlled group as a group of corporations under common control (for
example, a parent corporation and subsidiaries) in which the parent
owns at least 50 percent of the voting stock. 

A plan filing a Form 5500 is not required to indicate its membership
in a controlled group or identify the members of any controlled group
to which it belongs.  Likewise, information on controlled group
composition is not currently available from the Department of Labor
or the Internal Revenue Service (IRS).  Therefore, it is not possible
to assign individual plans to their respective controlled groups and
determine if the individual account plans of the controlled group
represent more than 10 percent of the assets of all the pension plans
of that controlled group.  Moreover, none of the proposed changes to
the Form 5500 will identify members of a controlled group of
corporations. 


      EXTENT OF EMPLOYER
      SECURITIES AND REAL PROPERTY
      INVESTMENTS CANNOT BE
      READILY IDENTIFIED
---------------------------------------------------------- Letter :4.4

Although the section 1524 provisions apply to 401(k) plans that
require that employee contributions be invested in employer
securities and real property, it may be difficult to determine the
amount of employer securities and real property owned by these plans. 
This is because a 401(k) plan that pools its assets with those of
other plans for investment purposes reports only one asset amount on
the Form 5500.  This amount represents its interest in the pooled
arrangement but provides no information about separate investments,
such as employer securities and real property.  Although PWBA
contracts with a private firm to spread these single amounts into
separate investments, including employer securities and real
property, some cannot be spread.  Some of the plans whose assets are
not spread may be 401(k) plans and may own employer securities or
real property. 

The new Form 5500 will provide more information on the type and
amount of assets a plan owns through a pooled investment arrangement. 
Under the proposal, a plan will continue to file its own Form 5500. 
In addition, reports for each pooled arrangement to which it belongs
will be made in separate Form 5500 reports to PWBA.  The Form 5500
for each pooled arrangement will show investments in stocks, bonds,
employer securities, and the like.  Attachments to the Form 5500 will
provide the name, employer identification number, plan number, and
monetary interest of each plan or other entity belonging to the
pooled arrangement. 


   OTHER MECHANISMS AVAILABLE TO
   SAFEGUARD PARTICIPANTS IN
   EMPLOYER-DIRECTED 401(K) PLANS
------------------------------------------------------------ Letter :5

We identified other mechanisms that would be available to
policymakers if additional safeguards are needed in the future.  Two
mechanisms--
enhanced reporting and disclosure and prescribed education programs--
identified during our review could be administratively implemented
under existing authority provided in title I of ERISA.  Two other
mechanisms--
adoption of the diversification requirement used for ESOPs and use of
independent fiduciaries to examine investment decisions--would
require the Congress to add or amend statutory requirements. 


      ENHANCED REPORTING AND
      DISCLOSURE
---------------------------------------------------------- Letter :5.1

One such mechanism would use authority already granted to the
Secretary of Labor to require that 401(k) plans provide information
on the plan's investment in employer securities and real property to
plan participants.  Although this mechanism could be applied only to
employer-directed 401(k) plans requiring that employee contributions
be invested in employer securities and real property, the same
mechanism could also benefit participants in all 401(k) plans. 

ERISA requires that the plan administrator provide each plan
participant with a summary of the pension plan information reported
to the Department of Labor on the Form 5500.  The summary annual
report (SAR) must contain the information and be in the format
prescribed by the Secretary of Labor.  Currently, the Secretary does
not require that the SAR contain information about employer
securities and employer real property that the plan owns.  The
Secretary could require a revised and expanded SAR that would
disclose the amount of employer securities owned by the plan, its
current or fair market value, the percentage of the plan assets it
represents, and whether the employer securities are publicly traded
on a national exchange or privately held.  Finally, plan participants
could be provided some statement about the employer's financial
condition and other information to be more fully informed about their
holdings and any potential risk associated with them. 

If needed, plans with a specified threshold of employer securities
and real property could provide additional reports to PWBA officials. 
In this regard, additional reporting might focus on the specific
nature, scope, and percentage of investment in those securities or
real property; whether the securities are publicly traded or
privately held; and whether they are valued at share or par value. 
Plans exceeding the threshold could also be required to report to
PWBA if the shares of employer securities or the value of employer
real property held by the 401(k) plan would decline precipitously
within some specified time period.  Reporting of this information to
PWBA could enable the agency to more strictly scrutinize the plans
and seek earlier enforcement efforts when appropriate to preserve a
plan's assets and secure the retirement income of plan participants. 
The enhanced reporting to PWBA would be similar to that currently
provided to the PBGC under certain situations.\11


--------------------
\11 Under section 4043 of title IV of ERISA, within 30 days after a
plan administrator or contributing sponsor for a defined benefit plan
knows or has reason to know that a reportable event has occurred, he
or she must notify the PBGC that such an event has taken place.  The
reportable event in this instance could conceivably be the plan's
acquisition of a percent of employer securities or real property
above a certain threshold or a precipitous decline in the value of
the employer's stock or real property. 


      EDUCATION PROGRAMS
---------------------------------------------------------- Letter :5.2

Another mechanism would be to require an educational program for plan
participants in 401(k) plans that hold any or a prescribed threshold
of qualifying employer securities and real property.  The educational
requirements for 401(k) plans with employer securities and real
property might require that participants in the affected plans be
told about or given materials informing them about (1) investment
concepts, such as risk and return, diversification, dollar cost
averaging, and compounded return; (2) historic differences in rates
of return among different asset classes (for example, stocks, bonds,
employer securities, or cash); (3) estimating future retirement
income needs; (4) determining investment time horizons, including
models involving hypothetical individuals with different time
horizons and risk profiles; and (5) assessing risk tolerance. 
Participants could also be provided questionnaires, worksheets,
software, and similar materials to give them a way to estimate future
retirement income needs and assess the impact of different asset
allocations on retirement income. 

Even with the benefits of increased participant knowledge, enrolling
plan participants in educational programs would have little or no
impact on the level of employer securities and real property
investments if such investments are typically controlled by the
employer.  Nevertheless, such a program might broaden plan
participants' perspective and enable them to make better judgments
about their retirement income security. 


      USE OF ESOP DIVERSIFICATION
      REQUIREMENTS
---------------------------------------------------------- Letter :5.3

A third approach would extend the ESOP diversification requirements
to employer-directed 401(k) plans requiring employer securities and
real property investments.  The Internal Revenue Code requires ESOPs
to provide the means for "qualified participants" nearing retirement
to diversify part of their ESOP account balance for stocks acquired
after 1986.  In general, beginning with the plan year following the
participant's reaching both age 55 and completing 10 years of plan
participation, the plan must allow the participant to diversify at
least 25 percent of the total account.  Five years later, the
participant must be allowed to diversify at least 50 percent of the
account.  Alternatively, the ESOP may distribute to the participant
the amount that could be diversified. 

In all likelihood, this provision's effectiveness in protecting
participants whose employer's stock or real property is declining in
value would be minimal because the provision would not protect plan
participants who had not reached age 55 and completed 10 years of
plan participation.  This latter impediment could be overcome by
requiring periodic "open seasons" in which plan participants could
diversify investments. 


      EXAMINATION OF INVESTMENT
      DECISIONS BY INDEPENDENT
      FIDUCIARIES
---------------------------------------------------------- Letter :5.4

A final option would be to require an independent fiduciary to
examine and make decisions about whether and to what extent amounts
of employer securities and real property could be contributed by the
plan sponsor.  Such a mechanism has been used frequently by PWBA to
better protect plans in possible conflict-of-interest situations.  An
independent fiduciary could more discreetly and expertly examine
whether or not the plan would be inordinately subjected to financial
loss by certain levels of investment in employer securities and real
property. 

The independent fiduciary would have broad authority to limit,
remove, or conceivably add employer securities and real property to
the mix of investments for that plan to better protect plan
participants' retirement income.  In essence, the independent
fiduciary would be an unaligned third party who could review the
plan's holdings and transactions to better ensure the proper
diversification of plan assets and the value of holdings to improve
the financial security of plan participants in such arrangements. 
The independent fiduciary would act as an honest broker seeking to
minimize plan losses, maximize its profits, and eliminate instances
of self-dealing which might otherwise threaten the plan's financial
security. 

Although using this approach would minimize the possibility of self-
dealing by the employer or the employer's representative, it might
add administrative cost otherwise not incurred by employer-directed
plans. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of this report, the Assistant Secretary for
Pension and Welfare Benefits expressed overall agreement with our
report findings.  Our findings on the scope of employer securities
and real property investments by 401(k) plans were considered to be
"generally consistent with PWBA's own, albeit less comprehensive,
analysis of the Form 5500 Series data in this area."

The Assistant Secretary also indicated that the mechanisms we
identified for consideration by policymakers if future alternatives
to the enactment of the section 1524 provisions are needed to protect
participants in employer-directed 401(k) plans merit further
consideration.  In this regard, the mechanisms discussed in our
report will be studied when the Department of Labor's Advisory
Council on Employee Welfare and Pension Benefit Plans, which is also
conducting a review of 401(k) plan investments in employer securities
and real property, completes its study and makes recommendations to
the Secretary of Labor.  Our report findings and the Advisory
Council's recommendations will be used to determine what further
action may be appropriate regarding employer securities and real
property investments by 401(k) plans. 

The Assistant Secretary also had technical comments about our report. 
These focused on our discussion of (1) the PWBA contractor's ability
to fully identify the extent of employer securities and real property
owned by 401(k) plans in 1993 and (2) the improvements proposed in
the ongoing revision of the Form 5500 to provide more information on
the type and amount of assets owned by plans through pooled
investment arrangements.  We made changes to the final report, where
appropriate, after further discussions with PWBA officials about
these issues.  (See app.  IV.)


   OBSERVATIONS
------------------------------------------------------------ Letter :7

Although it is always possible for some employers sponsoring 401(k)
plans to go bankrupt in the future, the potential for a large number
of workers to lose benefits because their 401(k) plan is invested in
a bankrupt employer's securities or real property is not widespread. 
For the latest year for which data are available, fewer than 2,500 of
the nearly 160,000 401(k) plans that filed Form 5500s reported that
they owned employer securities and real property.  In addition, most
participants in 401(k) plans that owned employer securities and real
property had participant-directed 401(k) plans that PWBA identified
as supplemental to other pension plans the employer offered. 

Nonetheless, 756 401(k) plans had 1.4 million participants in 1993 in
which the employer directed the investment of all plan assets. 
Participants in employer-directed 401(k) plans will always be
somewhat vulnerable to investment decisions over which they have no
control.  However, beginning in 1999, the recently enacted section
1524 provisions in title I will prevent employer-directed plans that
have more than 10 percent of employee contributions invested in
employer securities and real property from investing more employee
contributions in assets of this type. 


---------------------------------------------------------- Letter :7.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies of
this report to the Secretary of Labor, the Secretary of the Treasury,
the Commissioner of the Internal Revenue Service, the Director of the
Office of Management and Budget, and other interested parties. 

Please contact me on (202) 512-7215 or Fred E.  Yohey, Jr., Assistant
Director, on (202) 512-7218 if you have any questions about this
report.  Major contributors to this report are listed in appendix V. 

Sincerely yours,

Jane L.  Ross
Director, Income Security Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

The Chairman of the House Ways and Means Committee asked us for
information on the Employee Retirement Income Security Act of 1974
(ERISA) rules governing investments by 401(k) plans.  After
subsequent discussions with the chairman's office, we agreed to
address the following questions:  (1) To what extent are 401(k)
pension plan assets invested in employer securities and real
property?  (2) What potential problems may be associated with
implementing and enforcing the title I amendments?  and (3) What
mechanisms could safeguard the retirement benefits of participants in
employer-directed 401(k) plans that invest in employer securities and
real property? 

To determine the extent to which the assets of single-employer
defined benefit and defined contribution plans were invested in
employer securities and real property, we analyzed the Internal
Revenue Service (IRS) Form 5500 computerized database maintained by
the Department of Labor's Pension and Welfare Benefits Administration
(PWBA).  Under ERISA, all private employers are required to annually
report certain financial, participant, and actuarial data for each of
their defined benefit and defined contribution plans.  Our data
analysis was limited to the most recent plan year (plan year 1993)
for which final plan-specific data were available. 

The data we developed differ from that produced by PWBA and published
in its Abstract of 1993 Form 5500 Annual Reports.  Although PWBA's
data are based on analyses of all large plans with 100 participants
or more combined with a representative sample of 5 percent of small
plan (fewer than 100 participants) filers, our report data are based
on the analyses of data submitted by each large and small pension
plan contained in the databases that PWBA provided for our review. 
In addition, we worked extensively with IRS to identify all known
401(k) plans in the Form 5500 database. 

We did not independently verify the accuracy of the research
databases because IRS and PWBA check the data for accuracy and
consistency.  Importantly, the data we analyzed were accurate only to
the extent that employers exercised appropriate care in completing
their annual Form 5500 reports. 

To examine the protections provided by and any potential problems
associated with the recent amendments to ERISA, we discussed the
amendments with officials of the Departments of Labor and Treasury. 
We also developed a model to show the amount of employee
contributions that could be invested in employer securities and real
property assuming a 10-percent limitation on such investments and
various changes in the value of employer securities and other
investments.  Finally, we determined whether available Form 5500 data
were adequate to implement and enforce the new amendments. 

To determine what rules and other mechanisms could be considered to
better protect plan participants in employer-directed 401(k) plans,
we identified alternative strategies already authorized by federal
law.  In addition, we identified or learned about mechanisms
suggested by experts that could be considered to protect pension plan
assets--and ultimately future retirement benefits--of plan
participants and their families.  The organizations with whom we
discussed these strategies are the American Association of Retired
Persons; 401(k) Association; Profit Sharing/401(k) Council; ERISA
Industry Committee; Association of Private Pension and Welfare Plans;
American Institute of Certified Public Accountants; Investment
Company Institute; Employee Benefit Research Institute; and Financial
Executives Institute as well as officials from the Department of the
Treasury, IRS, and PWBA.  We also spoke with a former Minority
Counsel for the Senate Committee on Labor and Public Welfare (1970 to
1975), who is a nationally recognized expert on private pension plan
issues. 

We performed our review in Washington, D.C., from November 1996
through September 1997 in accordance with generally accepted
government auditing standards. 


FEDERAL FIDUCIARY RULES ON
INVESTING PENSION PLAN ASSETS
========================================================== Appendix II

The Employee Retirement Income Security Act of 1974 (ERISA) imposes
fiduciary rules on the conduct of those charged with managing or
administering a pension plan, including investing plan assets.  All
pension plans are subject to these rules; however, significant
exemptions exist for defined contribution plans, including 401(k)
plans. 


   ERISA FIDUCIARY INVESTMENT
   RULES APPLY TO DEFINED BENEFIT
   AND DEFINED CONTRIBUTION PLANS
-------------------------------------------------------- Appendix II:1

According to title I of ERISA, pension plan fiduciaries--people
exercising discretionary authority or control for managing pension
plans or disposing of their assets--have a duty to act solely in the
interest of plan participants and beneficiaries regarding the pension
plans they manage or administer.  Under this broad general
requirement, ERISA requires a fiduciary to observe the following
rules: 

  -- The "exclusive purpose" rule.  The fiduciary must have an
     individual loyalty to participants and beneficiaries to provide
     benefits and defray reasonable expenses in administering the
     plan. 

  -- The "prudent man" rule.  The fiduciary must act with the care,
     skill, prudence, and diligence under the prevailing
     circumstances that a prudent person, acting in a like capacity
     and familiar with such matters, would use in the same sort of
     situation. 

  -- The "diversification" rule.  The fiduciary must diversify the
     plan's investments by type, geographic area, dates of maturity,
     and industrial classification to minimize the risk of large
     losses.  The diversification rule attempts to minimize the risk
     of large losses that might occur from an overconcentration of
     plan assets in any of these four areas. 

  -- The fiduciary must observe the requirements of, and act in
     accordance with, the documents and instructions governing the
     plan. 

In addition to the fiduciary rules, ERISA also specifies a number of
prohibited transactions.  A fiduciary is barred from engaging in such
transactions if he or she knows or should know that ERISA prohibits
them.  The types of transactions prohibited by ERISA are those
involving an inherent conflict of interest between the plan and
people associated with the plan ("parties-in-interest"). 

For example, ERISA prohibits fiduciaries from allowing a plan to
engage in a transaction for selling or leasing any property; lending
money or extending credit; furnishing goods, services, or facilities
between the plan and a party-in-interest; or transferring any plan
assets to a party-in-interest.  ERISA also prohibits fiduciaries from
dealing with a plan's assets for their own personal interest and
involving the plan in transactions with parties whose interests are
adverse to the plan's participants or beneficiaries. 

Finally, ERISA has a rule that places a 10-percent limitation
(10-percent limitation rule) on acquiring and holding qualified
employer securities and qualified employer real property.  The
10-percent limitation rule states that a plan may not acquire any
qualified employer securities or real property if immediately after
the acquisition the aggregate fair market value of such assets
exceeds 10 percent of the fair market value of the plan's total
assets.  Employer securities and real property that appreciate in
value after acquisition to 10 percent or more of total plan assets do
not have to be sold. 


   ELIGIBLE DEFINED CONTRIBUTION
   PLANS ARE EXEMPT
-------------------------------------------------------- Appendix II:2

Although the fiduciary rules discussed above apply to both defined
benefit and defined contribution plans, specific exemptions do exist
for eligible defined contribution plans.  Such plans may include
profit-sharing plans, thrift savings plans, money purchase plans, and
employee stock ownership plans as well as 401(k) plans with some
restrictions after the passage of the Taxpayer Relief Act of 1997. 
The Congress' decision to exempt these defined contribution plans may
reflect recognition that certain defined contribution plans have
always invested in employer securities or real property. 

Concerning acquiring and holding employer securities and real
property, defined contribution plans are specifically exempt from the
general diversification requirement and from the prudence requirement
to the extent that the prudence requirement would require
diversification.  Accordingly, fiduciary rules do not require defined
contribution plans to diversify plan assets.  Nor are defined
contribution plans required to follow ERISA's 10-percent limitation
rule on investments in employer securities and real property as long
as the transactions are for adequate consideration and no commissions
are charged.  So, qualifying defined contribution plans may currently
acquire or hold as much employer securities and real property as they
want. 


ADDITIONAL DATA ON PENSION PLANS'
INVESTMENTS IN EMPLOYER SECURITIES
AND REAL PROPERTY
========================================================= Appendix III

This appendix contains additional information on pension plans'
investments in employer securities and real property.  Table III.1
shows plan year 1993 data on investments in employer securities and
real property among defined benefit, employee stock ownership plans
(ESOP), other defined contribution plans, and 401(k) plans.  Table
III.2 shows the percentage of 401(k) plan assets invested in employer
securities and real property by plan size. 


   OVERALL INVESTMENT IN EMPLOYER
   SECURITIES AND REAL PROPERTY
------------------------------------------------------- Appendix III:1

Only 10,191 of the 634,280 single-employer defined benefit and
defined contribution pension plans that filed a Form 5500 for plan
year 1993 owned employer securities or real property.  Total value of
these employer-related investments, including both securities and
real property, was approximately $162 billion.  ESOPs, which are
required by law to purchase and hold employer stock, were the main
owners of this type of asset.  In fact, ESOPs owned about $91 billion
of employer stock, which amounted to more than all other types of
plans combined.  The second largest owners were 401(k) plans, with
2,449 plans owning about $53 billion.  Defined benefit plans and
defined contribution plans (other than ESOPs and 401(k) plans) owned
considerably less.  (See table III.1.)

Employer-related investments consisted almost exclusively of employer
securities.  Of the $162 billion of employer securities and real
property owned, only $598 million was identified as employer real
property.  Overall, we identified only 86 large plans that owned
employer real property, including 9 ESOPs, 11 401(k) plans, 44
defined benefit plans, and 22 other types of defined contribution
plans. 

The 10,191 plans that invested in employer securities and real
property covered about 16.6 million workers.  This included
approximately 5.4 million in ESOPs, 5.3 million in 401(k) plans, 4.9
million in defined benefit plans, and about 1 million in other
defined contribution plans.\12



                                       Table III.1
                         
                             Summary Schedule of Pension Plan
                          Investments in Employer Securities and
                             Real Property by Plan Type, 1993

                        Number of                                                   Total
                       plans that                                                employer
                            owned                    Employer                  securities
                         employer      Employer          real                    and real
                       securities    securities      property                    property
                          or real         owned         owned    Combined\a         owned
Plan type                property    (billions)    (billions)    (billions)    (billions)
-------------------  ------------  ------------  ------------  ------------  ------------
Defined benefit               826          $7.3           $.1           $.1          $7.5
Defined
 contribution
ESOP\b                      5,576          87.8           <.1           3.6          91.4
401(k)                      2,449          52.3            .4            .3          53.0
Other                       1,340           9.7           <.1            .3          10.1
=========================================================================================
Total                      10,191        $157.1           $.6          $4.4        $162.0
-----------------------------------------------------------------------------------------
Note:  Because of rounding, sums of individual items may not equal
totals. 

\a This is a combined total of employer securities and real property
owned by small plans.  Plans with fewer than 100 participants do not
report amounts of employer securities and real property separately. 

\b Includes 613 ESOPs with a 401(k) feature.  In total, these 613
ESOPs had approximately 2.1 million participants and $54 billion of
their $100 billion of plan assets invested in employer securities and
real property in 1993. 


--------------------
\12 Some double counting may have occurred.  A worker may be covered
by more than one plan (for example, a defined benefit plan and a
401(k) plan). 


   PERCENTAGE OF 401(K) PLAN
   ASSETS INVESTED IN EMPLOYER
   SECURITIES AND REAL PROPERTY BY
   PLAN SIZE
------------------------------------------------------- Appendix III:2

The size of 401(k) plans appeared to relate somewhat to the
percentage of plan assets invested in employer securities and real
property.  In this regard, plans with less than 100 participants and
plans with over 5,000 participants tended in 1993 to invest a higher
percentage of their total plan assets in employer securities and real
property. 

The entries in each cell in table III.2 represent the percentage of
plans of the size shown in column one that have the percentage of
plan assets shown at the top of the column invested in employer
securities and real property.  For example, the first cell shows that
28 percent of the plans with less than 100 participants have up to 9
percent of plan assets invested in employer securities or real
property. 



                                       Table III.2
                         
                          Percentage of Plan Assets Invested in
                         Employer Securities and Real Property by
                                     Plan Size, 1993

                                     Percentage range
                ----------------------------------------------------------
Plan size        >0-   10-   20-   30-   40-   50-   60-   70-   80-   90-     Number of
(participants)     9    19    29    39    49    59    69    79    89   100         plans
--------------  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ------------
Less than 100     28    15    12    12     8     6     3     5     4     8           726
100-249           37    17    14    10     8     3     4     3     1     2           428
250-499           36    19    13     8    10     5     4     3     1     2           292
500-999           36    16    15     9     8     4     4     4     1     3           281
1,000-4,999       32    18    13     9     9     6     4     4     2     2           509
5,000-9,999       23    20    15    11    10     7     5     6     1     3           104
10,000 or more    17    20    20    13     9     6     6     4     5     1           109
----------------------------------------------------------------------------------------
Note:  Because of rounding, sums of individual items may not equal
totals. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
LABOR
========================================================= Appendix III



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

Fred E.  Yohey, Jr., Assistant Director, (202) 512-7218
Harry A.  Johnson, Evaluator-in-Charge
Dennis M.  Gehley, Senior Evaluator
Paula J.  Bonin, Program Analyst


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