Buying shares of stock in the company you work for may seem an appealing idea — invest in what you know. But there are pitfalls in putting too much of your savings into the same place that also provides you your paycheck — just ask anyone who’s ever worked for Enron Corp.

Workers at the Houston-based energy giant saw their retirement savings — much of which was tied up in company stock — vanish in 2001 after Enron’s share price plummeted 98.8 percent, eventually leading the company to file one of the largest corporate bankruptcies in U.S. history.

Still, employees don’t always have a choice when it comes to saving for retirement. While many employers match part or all of their employees’ contributions made through a 401(k) plan, some still make that contribution in the form of stock — not cash.

That can leave workers’ nest eggs far too exposed should a downturn hit a segment of the economy in which the company does business, says Maria Bruno, senior investment analyst at Vanguard. “If the sector goes through a bear market … that could impact the industry, [and] could impact the company and your own retirement.”

Employees need to ask themselves how exposed they are to the company and the industry, and whether their portfolios are overweighted and by how much, she says.

To limit losses, workers should routinely exchange shares of company stock for another form of investment offered through their 401(k) plan, such as an index fund, Bruno says. Further, setting up your account to conduct periodic exchanges automatically can help ensure minimizing the risk to your savings. But keep an eye on expenses. It’s important to know what fees, if any, you may incur when trading one type of investment for another, she says.

Some experts advise that shares of company stock should comprise no more than 10 percent of your total portfolio. And key to exchanging your shares is knowing when you acquire their full value — the vesting schedule. Your plan may require that you be 100 percent vested in your shares before you can exchange them for another type of investment.

While employer stock is still common in 401(k) plans, it is becoming less so. According to the Employee Benefit Research Institute, the percentage of total 401(k) assets that included company stock dropped from 19 percent in 1999 to 8 percent in 2010. The percentage of workers who can invest in company stock has also fallen, as has the percentage of plan participants whose portfolios contain more than 20 percent in company stock.

Employers have recognized that it’s not advisable for employees to have large allocations of stock, says David Blanchett of Morningstar, a Chicago-based investment research firm.

That acknowledgment is being driven in part by numerous lawsuits that have been brought against plan sponsors over the last few years, especially after a substantial drop in the company’s share price.

“Employees view the decision by the employer to offer the stock as an endorsement of the soundness of the investment,” Blanchett says.

The cases, known as stock-drop cases, argued that companies didn’t do enough to protect plan participants from substantial losses and in doing so failed in their fiduciary duty.

Twenty-two stock-drop cased have been filed during the four years ending 2014, according to data from Cornerstone Research, an economic and financial consulting firm that tracks stock-drop lawsuits. The record was 36 in 2008. The results have been a mixed bag, with some courts siding with investors and others favoring employers.

Federal rules that took effect in 2010 require plan sponsors to offer at least three investment options other than company stock, and stipulate that rules governing the purchase or selling of company stock can be no more restrictive than those of investment options.

But eliminating company stock as investment choice can be a tricky decision on the part of management, as it may signal to employees that there’s something wrong with the company.

Ultimately, investors would do well to remember one of the key tenants of investing: diversify. The narrower you are with your investments, the greater your risk, says Vanguard’s Bruno: “[Diversification] doesn’t ensure against a loss, but it does help lessen a significant loss.”

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Should You Keep Company Stock in Your 401(k)? originally appeared on usnews.com