Enron fall spurs stock proposals

Ex-CEO likely to face questions on 401(k)s before Congress

Legislation almost certain

Bush, lawmakers advance changes that stress diversity

February 03, 2002|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - When he testifies before Congress tomorrow, Kenneth L. Lay, Enron Corp.'s former chairman, will likely face sharp questions about how he and other top executives cashed in on their company stock even while employees had to watch helplessly as their nest eggs evaporated.

His testimony comes as President Bush, who for years benefited from Lay's campaign donations, has joined critics in denouncing Enron's financial practices and in offering a plan to protect workers.

At the White House and in Congress, the Enron debacle has touched off a torrent of suggested reforms intended to protect retirement savings, and they carry one classic piece of investment advice: diversify.

Bush wants to give employees greater flexibility to reduce the amount of company stock in their 401(k) retirement accounts. Some Democrats would go so far as to require workers to limit the company stock in their accounts.

"My plan," Bush said last week, "will strengthen workers' ability to manage their own retirement funds by giving them more freedom to diversify."

The Bush plan also addresses perhaps the central point of outrage in the Enron collapse: that employees were barred from selling their company stock during a "blackout" period even while top managers were allowed to cash their shares before Enron's bankruptcy made the stock all but worthless.

The rush to enact reforms and the hearings being held by a dozen committees in Congress have been driven by the loss of billions of dollars to Enron's workers and shareholders.

"Employees who have worked hard and saved all their lives should not have to risk losing everything if their company fails," Bush said yesterday in his weekly radio address.

Bush would let employees sell company stock that employers contribute to retirement accounts after three years. Enron did not let employees do so until they reached age 50.

The president would also require that employees be given 30 days' notice if access to their 401(k) accounts is about to be blocked for technical changes - as in Enron's case. And he would apply to top executives the same restrictions on selling company stock that cover other employees.

Workers should have "the benefit of solid, independent investment advice," he said yesterday. "Right now, the law deters companies from providing employees with sound advice, such as information about the benefits of diversification."

And, he said, "employers should be required to provide regular information to their workers about the current value of their accounts and their right to sell and diversify. Right now, employers need to give an accounting to workers only once a year. We're going to tell them they must do so every three months."

Among the most serious problems exposed by the Enron collapse is that many workers voluntarily invest far more of their retirement savings in their company stock than is considered wise. By failing to diversify their investments, they put their retirement money at risk.

"Most people are holding 401(k) plans that are way too heavily concentrated in company stock," said David Certner of AARP, the lobby of retirees and those nearing retirement. "Everyone agrees the answer to that is diversification. The question is how to achieve that."

Some form of legislation is considered almost certain to pass as politicians across the spectrum scramble to respond to the events in which thousands of Enron employees lost their life savings.

But with businesses large and small complaining that they would be unfairly punished for Enron's misdeeds, even modest changes in retirement savings and pension laws are likely to provoke a battle.

"Let's not rush to judgment and arbitrarily impose broad new regulations and rules on retirement plans in reaction to what happened at Enron," said Dorothy Coleman of the National Association of Manufacturers, part of a coalition of business groups formed to resist changes in the pension system.

"Our voluntary retirement and investment systems work quite well on the whole," she said, "and we must be very wary of making any hasty moves that will stifle the growth potential of these wealth-enhancing plans."

$2 trillion in assets

About 42 million American workers - nearly half of all full-time employees - own 401(k) accounts, with a total of $2 trillion in assets, according to the Employee Benefits Research Institute.

In many cases, these savings plans - which typically include matching contributions by employers - have replaced traditional employer-paid pensions, which guarantee workers a retirement payout based on salary and years of service.

Some employers make their matching contributions to 401(k) accounts in the form of company stock rather than cash. Sometimes, employees will buy still more company stock as part of their contributions to their accounts.

As a result, Certner said, workers at some companies are holding as much as 90 percent of their retirement savings in their company's stock.

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