Dell CFO Urges Employees to Diversify Savings Plans
By Peter J. Brennan
New York, April 5 (Bloomberg) -- Dell Computer Corp. Chief Financial Officer James Schneider is urging employees to hold fewer Dell shares in their retirement accounts, after Enron Corp. workers lost millions when the energy trader collapsed.
About 58 percent, or $623 million, of the 401(k) retirement plan for workers at the world's largest personal computer maker is invested in the Dell Computer Corp. Stock Fund, compared with 54 percent a year ago, according to a regulatory filing on Monday. Dell has about 34,000 employees, and the fund has $1.08 billion invested.
``We've been kind of concerned,'' Schneider said in an interview yesterday after the company's analyst meeting in New York. ``We didn't think about it too much until you have an incident like that (at Enron). We're trying to make sure people are educated and have some diversity.''
Enron's employee 401(k) plan held 62 percent of its assets in the Houston-based company's shares. Enron, once the seventh- largest U.S. company, restated earnings last year, triggering a collapse of its stock that forced it to seek bankruptcy protection in December. The shares now trade at about 33 cents on over-the- counter bulletin boards.
Dell isn't in danger of collapsing like Enron did, Schneider said. Investors and analysts have praised the company for the cash it generates, for having wider profit margins than rivals and being the market leader in PCs. At the Jan. 31 end of its fiscal year, Dell had $3.6 billion in cash and equivalents.
``I wouldn't have expected anything different from the CFO,'' said Sunil Reddy, a fund manager at Fifth Third Bank, which owns 660,000 Dell shares as of December and manages $34 billion in assets. ``It's basic financial planning.''
Common Practice
Still, Enron's collapse is prompting regulators, lawmakers and some companies to rethink a practice that became common in the late 1990s: encouraging workers to channel savings into their own companies' stock.
``It's great advice'' from Schneider to Dell employees, said Ed Soule, a professor of business ethics at Georgetown University. ``To say anything other than what Jim Schneider said is irresponsible. (Former Enron CEO) Ken Lay's advice to calm the employees seems like he was oblivious to basic investment principles.''
The shares of Austin, Texas-based Dell fell 33 cents to $26.42 and have increased about 5 percent in the past year.
Dell on Wednesday increased its fiscal first-quarter sales forecast to $7.9 billion and reiterated that earnings in the period ending May 3 will be 16 cents a share.
Best Performer
Of the $1.8 trillion in assets held in corporate 401(k) retirement plans, 20 percent, or $360 billion, is in the stock of employees' own companies, according to Joshua Dietch, consultant at Cerulli Associates Inc., a Boston-based research firm.
It's not surprising that a high percentage of Dell workers' 401(k) savings are in the company's shares because the PC maker has been such a successful investment, said Soule. The shares were the best performers on the Standard & Poor's 500 Index in the 1990s.
``It's been growing at a phenomenal rate over the years,'' said Soule. ``It's intoxicating when a company's stock is going up like that. It's almost irresistible.''
Dell allows employees to sell their shares as soon as they vest, and workers can move the money to other investment choices in the plan, Schneider said.
``A lot of other plans, when they put this money in company stock in there they make people keep it there,'' he said. ``We've never done that.''
Besides Dell shares, the PC maker's employees have invested in nine other funds, such as Pimco Total Return, the largest bond mutual fund with assets of $53 billion, and the Invesco Small Company Growth Fund, which declined 23 percent last year.
Different Needs
Some financial advisers have suggested that employees keep no more than 10 percent to 20 percent of their portfolio in their company's stock. Schneider said Dell isn't advising employees what percentage they should keep in the company's shares because each employee has different needs.
``Everything I have in those plans is in Dell stock,'' he said. ``If I want to diversify, I'll do it somewhere else. It depends on what people's strategies are.''
Congress shouldn't mandate how much an employee can invest in a company stock because workers have different tolerance for risk, Soule said. He said a higher percentage of shares in one company can significantly increase profit, citing the case of employees of Wal-Mart Stores Inc. that invested in their company.
``Employees have to ask themselves how comfortable they are with the preponderance of their net worth in one stock,'' said Soule. |
