Why would an employer prevent their employees from investing in the employer's stock through the employer-sponsored 401(k) account?

Because it's a super-bad terrible no-good diversification fail ...that also makes the company all too responsible for the employee's fate after retirement.

That is, after all, exactly how things worked in the Bad Old Days. You get home after V-J day and go to work for the Baldwin Locomotive Works, a stalwart blue-chip who had been in business for 120 years making steam locomotives (uh-oh). Your service will earn you a pension, which BLW pays out of profits just as it did for your grandfather and great grandfather. However, this ever-growing pension burden meant that BLW was becoming a pension company that happened to make locomotives on the side.

Well, fortunately, the pension industry had become savvy to this dangerous practice, and had changed the corporate structure so BLW was paying into a pension fund. The fund was separate, and wouldn't go bankrupt if BLW did. Except the two Boards of Directors were the same people. When BLW needed a loan, they borrowed from the pension fund. If they didn't have cash to pay into the pension fund, they issued it stock. So employee pensions were heavily invested in stock of, or loans to, the employer.

This resulted in a great many employees having their pensions go bust and become a burden to the government. This was landing in the government's lap to such an extreme degree that the government just "made it official", and formed the Social Security system. Later, the concept of a 401K was developed, so employees could direct their own retirement savings instead of fund managers.

However, the idea of investing your retirement in your own company has basically become a four letter word. Retirement should be invested in things that are safe as houses, and the financial industry already knows what that is, because university endowments are invested there. That is: a very broad mix of stocks, foreign stocks, bonds, insured investments, cashlikes, and sometimes a small fraction of real estate. And as the withdrawal time of the investment approaches, slowly roll the asset mix out of stocks and more into cashlikes.

But not just any stocks - the most diverse selection possible, so that no one failure of a business or sector can significantly damage the fund.

The problem with allowing employees to invest retirement in their own company is that companies will be tempted to oblige them to. For instance, my company puts my investments into a Target Fund by default, and I have to log in and positively move it. Imagine of they put it in their company's stock by default? For many employees, it would not even occur to them to change the investment mix to something sane. They would move on to other jobs, then at retirement find their retirement fund was extinguished because all the stock in it went to 0. That would drag us right back to the Bad Old Days.

Could it be that the board of directors wanted to have the ability to have more control over the company. Within my 401k I can not buy any more co. Stock after doing so after 20 years. I can move my shares out but can not buy them back. If the Board Was to trying to get you to diversify, why not limit the amount of shares you can own.

Also, no one can buy any shares in the future in the 401k Is the board of directors trying to increase control over the co. Trying to get more control over the co.