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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Patricia Trinchero who wrote (7)	1/9/2002 2:14:02 PM
From: Mephisto	Read Replies (1) \| Respond to of 5185

Pat, you are bad! (LOL)

To: Patricia Trinchero who wrote (7)	1/9/2002 5:28:35 PM
From: Mephisto	Respond to of 5185

The Boss's Stock Isn't Always the Best Bet The New York Times January 7, 2002 By J. MARK IWRY Lawyers and investigators have a long way to go in sorting out the causes behind the spectacular fall of the Enron Corporation. But for the Enron employees whose retirement funds were devastated by the free fall of Enron's stock price, the causes make little difference; they must deal with the effects. There may never be another boom and bust exactly like Enron's, but two conditions that made Enron employees financially vulnerable are common in the American workplace: a 401(k) plan loaded with employer stock and a set of company- imposed restrictions on most employees' ability to switch their holdings to other investments. Many of the 42 million Americans who participate in 401(k) plans - which currently hold $1.76 trillion in assets - have much of these savings invested in their employers' stocks. In those 401(k)'s that offer such company shares as investment options, an estimated 30 percent of all assets are invested in those shares. Moreover, it is not uncommon for 401(k) sponsors to impose "stock lock" on their employees: requiring the company match or other contributions to stay invested in the company's shares. All of this is perfectly legal. Federal pension law generally requires retirement plans' trustees to diversify investments, but it carves out an unlimited exception for 401(k)'s and most other defined-contribution retirement plans to invest in employer stock. And over the years - most recently in tax-cut legislation last June - Congress has conferred special tax deductions and other tax breaks on employers that sponsor employee stock ownership plans, or ESOP's, which are designed to invest primarily in the employer's shares. Four years ago, Congress passed legislation intended to limit workers' exposure to company stock in 401(k)'s. But that law affected few plans, because it applied only to employee contributions, not to employer matches. And it exempted ESOP's. For companies, making retirement-plan contributions in stock conserves cash flow and creates a bloc of shares less likely to be sold either when the stock price spikes in a hostile tender offer (yesterday's problem) or when it plummets in bad times as others dump their holdings (today's problem). And it is often said that employee stock ownership aligns employees' interests with those of management and shareholders. So what should Congress do? First, do no harm. Our private pension system has amassed the greatest pool of investment capital in history, providing retirement benefits to tens of millions of American families. It is voluntary: employers aren't required to provide retirement benefits. Had they not been able to contribute their own stock, some companies might not have made retirement plan contributions at all. From the employees' standpoint, getting company stock is generally far better than getting nothing (though one could argue that retirement benefits are really given as replacement for cash wages and other forms of compensation in a competitive labor market). Even so, it makes sense to protect employees from putting too much of the retirement nest egg in the same basket with job security. Employees in 401(k) plans should be given the right to diversify out of company stock within a reasonable time; the law gives them no such rights now. And the narrow diversification rights that now apply to employees in ESOP's should be significantly expanded. (ESOP's are now required to allow employees to diversify only a portion of their employer stock, only during limited window periods, and only after they reach age 55 with 10 years of plan participation.) But is it enough merely to enable employees to diversify? Employees free to do so often don't. Many simply keep their plans on automatic pilot. Others intentionally bulk up on company stock, driven by exuberance or encouraged by management's confidence and the stock's past performance. One solution might be for Congress to give trustees of plans that receive contributions of stock a choice among several options for protecting employees. One possible option for trustees: Limit the percentage of any employee's 401(k) account that can be invested in company stock, as Senators Barbara Boxer and Jon Corzine have proposed. (If any such limit were imposed, the law would have to grant plans adequate time to come into compliance, so that they could avoid sudden divestitures.) Another possible option for trustees: Appoint an independent adviser to oversee company stock investments. Employers can work with Congress to craft reforms that are balanced and that minimize employer costs and provide for an orderly transition; after all, it is to their benefit, too, that employees be protected. Ultimately, that is the most effective means of ensuring that employees' interests are aligned with the goals of management and shareholders. J. Mark Iwry was benefits tax counsel at the Treasury Department from 1995 to 2001. nytimes.com