he disastrous decline in Marsh & McLennan's stock that has followed Eliot Spitzer's lawsuit of last week has injured a broad array of institutional and individual investors. But the pain of losing almost 50 percent in share value is perhaps most excruciating to the thousands of Marsh & McLennan employees who have bought Marsh stock in the company's employee stock purchase plan or in their retirement plans.

In the months after the market crash of 2000, the lesson of diversifying beyond one company's stock was hammered home. But as the market recovered, many workers seemed to forget that important lesson. Marsh employees were among them; at the end of last year, one employee-benefit plan had $1.3 billion invested in Marsh & McLennan stock.

Now, of course, the risk in those holdings is all too apparent. But employee-benefit experts say that Marsh may be putting its 60,000 employees at additional risk, even as it enriches itself, by limiting the alternative investments to mutual funds that are for the most part managed by its Putnam Investments subsidiary.

"Fiduciaries of 401(k) plans are charged with making decisions that are in the best interests of the participants in the plan," said Edward A. H. Siedle, a former Securities and Exchange Commission lawyer who is president of the Center for Investment Management Investigations, a unit of the Benchmark Companies in Ocean Ridge, Fla., that investigates money management abuses on behalf of pensions. "When they are also employees of a money management company that gets hired by the plan there is a conflict of interest. This is especially problematic when the money manager is a high-cost, poor performer."

A spokeswoman for Marsh declined to discuss the potential for conflicts among the company's employee-benefit plans.

Given that the company is in the financial services industry it is perhaps not surprising that workers at Marsh & McLennan and its subsidiaries have been given many opportunities to buy their company's stock or its money management services. There is a pension plan, a stock purchase plan, 401(k) accounts, stock option grants and a cash bonus deferral plan to name a few. And in all cases, Marsh stock or Putnam funds dominate the offerings.

Sadly for these employees, Marsh shares have gone pretty much straight down since Mr. Spitzer filed his lawsuit against the company, contending that bid-rigging and other improprieties occurred in Marsh's insurance brokerage unit. Yesterday, Marsh stock fell another $1.47 a share, or 5.7 percent; it closed at $24.10 and has lost 48 percent since Mr. Spitzer filed the suit.

Workers who have participated in the Marsh stock purchase plan have taken perhaps the biggest brunt of this slide. Last year, 3.8 million shares were bought in the stock plan, well above the 2.85 million Marsh shares purchased in the plan in 2001. And employees working in the company's international division, which is broken out separately, bought 1.2 million shares in 2003, far more than the 717,000 shares they purchased during the previous year.

Taken together, the shares bought by employees in the Marsh stock purchase plan amounted to five million shares, or almost 1 percent of the 533 million shares outstanding at the company at the end of last year.

Marsh employees have also bought their company's stock aggressively in various 401(k) plans, a decision they now almost certainly rue. According to Marsh filings, at the end of last year, a defined-contribution plan for Marsh & McLennan employees had assets of $2.24 billion. Almost 60 percent of the plan's assets were in Marsh stock - $1.3 billion worth. Another $938 million in the plan was in funds managed by, you guessed it, Putnam Investments. Of the 17 fund choices on the plan's menu, 10 are Putnam funds.

Marsh is not alone in offering company stock as an investment option in its 401(k) plans. According to Hewitt Associates, a human resources and consulting firm that studies 401(k) plans nationwide, the vast majority of the 500 employers it surveyed - 84 percent - said they invested their employees' contributions to 401(k) plans in company stock.

Hewitt found that on average employees holding company stock had 41 percent of their balances tied up in those shares, essentially unchanged from allocations during 2002.

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