A $1 Million 401(k) Became a $500 Check: The WorldCom Lesson

A 401(k) worth more than $1 million shrank to a check for less than $500 after WorldCom's 2002 collapse — the entire account sat in company stock. Stephen Teel spent 23 years at MCI, according to ABC News, and stayed on after WorldCom absorbed the company. The Associated Press called him "the archetype of the loyal employee" in January 2005.

By his early fifties, Teel had built a seven-figure balance. "He invested every penny in the stock of his company, believing it had a bright future," the AP wrote. In 2003, his brokerage sent him the residual balance: under $500.

Teel was 56 when the AP told his story. "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," he said.

How WorldCom Went From $62 to 8 Cents

WorldCom's stock peaked at $62 in June 1999 and fell to 8 cents by June 2002, per ABC News. Investigators found $11 billion in accounting irregularities, the AP reported, producing the largest bankruptcy in U.S. history at the time.

Employees sued. Former CEO Bernard Ebbers and other officials agreed to a $51 million settlement in July 2004, including $47 million in immediate cash, according to PLANSPONSOR. Split among thousands of wronged workers, it could not rebuild a seven-figure account. "Economically, this litigation won't do anything to help me out at all," Teel told ABC News. After Ebbers' March 2005 conviction, he told the AP: "My plans were to retire early. Now, unless I hit the lotto, I'll never retire."

Who still carries Teel's risk?

Vanguard's How America Saves 2026 found 8% of Vanguard defined contribution plans offered company stock as of 2025. Only 2% of all participants held more than a fifth of their account in it. Within plans that offer the stock, concentration is higher — but falling. The share of those participants with more than 20% in company stock dropped from 24% in 2016 to 10% in 2025.

What does this change for an individual worker? If one company funds both your paycheck and a large slice of your retirement, you hold Teel's position, even if the stock has performed well.

Three ways to shrink a company stock position

• Use your legal right to diversify. Under 26 U.S.C. § 401(a)(35)(B), plans holding publicly traded employer stock must let you sell shares bought with your own contributions. Employer-bought shares can move after three years of service. Plans must offer at least three diversified alternatives and can limit switches to quarterly windows, per § 401(a)(35)(D). They must also send a notice explaining why diversification matters.
• Sell down in stages inside the plan. 401(k) trades trigger no tax, so shifting into diversified funds costs nothing upfront. Move a set slice each window until the position reaches a level you could survive losing. Check your cost basis first if the stock has risen sharply, because in-plan sales forfeit the treatment below.
• 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." Shares with a $50,000 basis worth $300,000 would put $50,000 in ordinary income at distribution; the $250,000 gain is taxed at long-term capital gains rates on sale. It requires a lump-sum distribution of your entire balance within one tax year, triggered by separation or reaching 59½, per IRS Topic No. 412.

A two-minute self-check

Add up your employer stock and compare it with your total net worth, then remember the paycheck. These rules cover 401(k)-type plans only; options, grants and brokerage shares follow different rules. Holding appreciated stock while planning to leave your job within a year or two is the trigger to hire a tax professional — because under current Vanguard data, roughly one in ten participants in company-stock plans still holds a fifth of their retirement in a single name.