He Built a Seven-Figure 401(k) Entirely in Company Stock—Then Lost Nearly Everything When WorldCom Collapsed. What Workers Can Do When Retirement Money Is Too Concentrated

Stephen Teel was the kind of employee companies dream about: loyal, steady, and willing to put nearly all of his retirement savings into the business he trusted for more than two decades. Today, federal rules offer workers a way out that he did not have, although many still fail to use it.

According to ABC News, Teel worked for MCI for 23 years and remained with the company after it was taken over by WorldCom. The Associated Press described him as “the archetype of the loyal employee,” someone who generally felt good about management and was looking forward to a comfortable retirement with his wife in Texas.

By his early fifties, Teel said he had accumulated more than $1 million in his 401(k). The AP reported that he invested every penny in company stock because he believed the business had a strong future. But after WorldCom’s collapse, the brokerage handling his account reportedly sent him a check for less than $500.

When the AP profiled him, Teel was 56. He said he had expected to retire before 60 and perhaps draw income from his 401(k) while working part-time. Instead, he said, those plans disappeared.

How WorldCom Fell From $62 to 8 Cents

ABC News reported that WorldCom shares reached $62 in June 1999 before sliding to 8 cents in June 2002.

The Associated Press said investigators uncovered $11 billion in accounting irregularities, and at the time the failure was the largest bankruptcy in U.S. history.

Employees filed lawsuits. In 2004, PLANSPONSOR reported that former CEO Bernard Ebbers and other executives agreed to a $51 million settlement, including an immediate $47 million cash payment. Spread among workers who lost money, the settlement could not make whole a seven-figure retirement account.

Teel told ABC News that the lawsuit would not help him financially. After Ebbers was convicted, he told the AP that he had hoped to retire early, but now believed he would never retire unless he won the lottery.

Fewer Workers Face This Risk, but It Has Not Disappeared

Vanguard’s How America Saves 2026 found that 8% of Vanguard defined contribution plans offered company stock as of 2025. Among all Vanguard participants, 2% had more than 20% of their accounts invested in company stock.

The concentration is higher in plans that do offer employer shares. Vanguard said the percentage of those participants holding more than one-fifth of their account in company stock declined from 24% in 2016 to 10% in 2025. That is progress, but it still leaves many workers with both their paycheck and much of their retirement linked to one employer.

Three Ways to Reduce a Big Company Stock Position

Use Your Legal Right to Diversify

This safeguard did not exist when Teel lost his savings. Federal tax law now requires any defined contribution plan holding publicly traded employer stock to let workers sell shares purchased with their own contributions and move the money elsewhere, under 26 U.S.C. § 401(a)(35)(B).

Shares bought with employer contributions can be moved after at least three years of service. The plan must also provide at least three diversified investment choices with meaningfully different risk and return profiles, and it may limit transfers to windows that occur no less often than quarterly, according to § 401(a)(35)(D). Plans are also required to send participants a notice explaining why diversification matters, so it is worth reading carefully.

Sell Gradually Inside the Plan

Because 401(k) trades do not trigger taxes, shifting money out of employer stock generally does not create a tax bill. For many workers, the simplest approach is to move a fixed amount into diversified funds each time a transfer window opens until the position is at a level they could afford to lose.

One important exception involves net unrealized appreciation, or NUA. IRS Publication 575 explains that employer stock basis is taxed as ordinary income, while the appreciation can be taxed later at capital gains rates. In most cases, the gain is not taxed until the shares are sold.

For example, stock with a $50,000 basis and a $300,000 value would mean the $50,000 basis is taxed as ordinary income at distribution, while the $250,000 gain is generally taxed at long-term capital gains rates when sold.

The rules are strict. NUA treatment requires a lump-sum distribution of your entire balance from all qualified plans of the same type in a single tax year, usually after leaving the job or reaching age 59½, according to IRS Topic No. 412. Anyone considering this should consult a tax professional first, since the consequences depend on bracket, cost basis, and timing, and errors cannot be undone.

A Quick Self-Check Before Your Next Window

Add up how much of your 401(k) is in employer stock, then compare it with your overall net worth. Also think about your paycheck. If one company provides both your income and a major share of your retirement, you are carrying a risk similar to Teel’s, even if the stock has performed well so far.

These rules apply to 401(k)s and similar retirement plans, not to stock options, grants, or brokerage accounts, which follow different rules. If you are holding highly appreciated company stock and expect to leave your job within a year or two, it is wise to consult a tax professional. The goal is a position you could afford to lose without jeopardizing your retirement, which usually does not mean selling everything.