Should there even be employer securities in a 401(k) plan or other retirement vehicle? That’s the million dollar question (or more like the hundred million dollar question) that cases like those arising out of the Bear Stearns collapse raise. Moreover, it goes right to the underlying tension between ERISA and the securities laws that plays out in the concept of fiduciary duty: namely, the extent to which it is appropriate for a fiduciary to continue to allow employer stock holdings in a retirement vehicle when the company is simultaneously facing market pressure on its stock price and an obligation to comply with the securities laws in dealing with the marketplace as a whole. The legal and philosophical issues of this inquiry go on and on, spinning on like a fall into the rabbit hole; this is manifest in cases such as the Seventh Circuit’s ruling in Baxter, discussed here, in which these types of issues are merely raised, but not resolved. It’s a good topic for a law review article, but since blog posts traditionally don’t run to the hundreds of pages, I am not going to get very far into answering those issues here, but rather want only to raise the topic, which I think will be played out in a fundamental manner in the case law as the subprime mess lurches its way through the legal system. And on a practical level, what raised this thought this morning was this story here in the New York Times about pension funds moving out of equities, because, while there is a certain apples and oranges aspect to any comparison between that issue and employee holdings of employer stock in defined contribution plans (in that pension funds are moving in this direction because of future liabilities related to pension plan payouts and not necessarily for the same reasons that an employee might not want to be invested in his or her own employer’s equities), that fact does raise an interesting question. Simply put, if the professionals who run pension funds are moving out of the stock market for, in part, volatility reasons, should comparatively unsophisticated 401(k) investors be allowed to, even in some instances encouraged to, overload with one particular company’s equities?