He Spent Two Decades At The Same Company And Reportedly Built A 401(k) Worth More Than $1 Million, All In Company Stock. After WorldCom Collapsed, He Got A Check For Less Than $500. Here Are The Options For Workers With Too Much Of Their 401(k) Tied Up In Employer Stock
Stephen Teel was the model loyal employee, betting every retirement dollar on the company he trusted for 23 years. Federal law now gives workers an escape hatch he never had, and most never use it.
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Stephen Teel spent 23 years working for MCI, according to ABC News, and stayed on after the company was swallowed up by WorldCom. In January 2005, the Associated Press called him “the archetype of the loyal employee,” a man who was mostly happy with management and planning a comfortable retirement with his wife in Texas.
By his early fifties, Stephen Teel says, he had built more than $1 million in his 401(k). “He invested every penny in the stock of his company, believing it had a bright future,” the AP wrote. The Associated Press reported that in 2003, after WorldCom’s collapse, his brokerage sent him a check for his account balance: less than $500.
The Associated Press reported he was 56 when it told his story. Stephen Teel said: “I was going to retire before 60. I was going to be able to draw from the 401(k), maybe work part-time. But that’s history. That’s never going to happen now.”
How WorldCom Went From $62 to 8 Cents
Per ABC News, WorldCom’s stock hit a high of $62 in June 1999 and fell to 8 cents in June 2002.
Investigators discovered $11 billion in accounting irregularities, the Associated Press reported, and the collapse was the largest bankruptcy in U.S. history at the time.
Employees sued. According to PLANSPONSOR in July 2004, former CEO Bernard Ebbers and other company officials agreed to a $51 million settlement, including an immediate cash payment of $47 million. Shared among workers who lost money, it could never rebuild a seven-figure account.
Teel told ABC News: “Economically, this litigation won’t do anything to help me out at all.” After Ebbers’ conviction in March 2005, he told the AP: “My plans were to retire early. Now, unless I hit the lotto, I’ll never retire.”
Fewer Workers Carry Teel’s Risk, but Many Still Do
Vanguard’s How America Saves 2026 found that 8% of Vanguard defined contribution plans offered company stock as of 2025. Across all Vanguard participants, 2% had more than a fifth of their account in company stock.
Concentration runs higher inside plans that offer it. Per Vanguard, the share of those participants holding more than a fifth of their account in company stock fell from 24% in 2016 to 10% in 2025. Progress, yet those workers still have their paycheck and a big piece of their retirement tied to one employer.
Three Ways to Shrink a Company Stock Position
Use Your Legal Right to Diversify
This protection did not exist when Teel lost his savings. Federal tax law now requires any defined contribution plan holding publicly traded employer stock to let you sell shares bought with your own contributions and reinvest elsewhere, under 26 U.S.C. § 401(a)(35)(B).
Stock bought with employer contributions can be moved once you complete at least three years of service. The plan must offer at least three diversified alternatives with materially different risk and return characteristics, and it can limit switches to windows happening no less often than quarterly, per § 401(a)(35)(D). Plans must also send a notice explaining why diversifying matters. Read yours.
Sell Down in Stages Inside the Plan
Since 401(k) trades trigger no tax, moving money out of employer stock costs nothing in taxes. For most workers this is the clearest path: shift a set slice into diversified funds at each window until the position reaches a level you could survive losing. One catch: shares sold inside the plan lose the special treatment below, so check your cost basis first if the stock has risen sharply.
Consider Net Unrealized Appreciation When You Leave
Per IRS Publication 575, “An exception exists for NUA, where employer stock basis is taxed as ordinary income and appreciation is taxed later at capital gains rates.” The appreciation is generally untaxed until you sell the shares.
As an example, shares with a $50,000 basis worth $300,000 would put the basis in ordinary income at distribution, while the $250,000 gain is taxed at long-term capital gains rates on sale.
The hurdle is strict. It requires a lump-sum distribution: your entire balance from all of the employer’s qualified plans of one kind within a single tax year, triggered by events such as separating from service or reaching 59½, per IRS Topic No. 412. Get a tax professional involved before you request it. The trade-offs depend on your bracket, basis and timeline, and a mistake can’t be undone.
A Two-Minute Self-Check Before Your Next Window
Add up your employer stock in the 401(k) and compare it with your total net worth. Then remember the paycheck. If one company funds both your income today and a large share of your retirement, you carry the same risk Teel did, even if the stock has been good to you.
These rules cover 401(k) and similar plans; stock options, grants and brokerage shares follow different rules. Holding highly appreciated company stock while planning to leave your job within a year or two is the trigger to book a tax professional. Aim for a position you could lose without losing your retirement, which rarely means selling everything.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
