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

To: TigerPaw who wrote (261)	1/16/2002 6:42:57 AM
From: stockman_scott	Respond to of 3602

SUSAN TOMPOR: Enron may change your 401(k) plan Blowup has Congress tinkering with rules January 16, 2002 BY SUSAN TOMPOR DETROIT FREE PRESS COLUMNIST The implosion at Enron Corp. -- where the seventh-largest company crumbled into the country's biggest bankruptcy -- could rock the foundation of your 401(k). Yes, your 401(k). The drumbeat is getting louder in Washington, D.C., for limiting how much of your company's stock you can stuff into your 401(k) plan. The father of the 401(k) plan suggests that you shouldn't be allowed to invest a dollar of your own money in company stock in the plan. Credit the blowup of retirement savings at Enron. There, many Enron employees had half or more of their 401(k) savings invested in the energy-trading company where they worked. Collectively, Enron employees lost millions by owning Enron stock when the company went bankrupt. One couple who worked at Enron saw $600,000 in 401(k) plans shrink to $271,000 in a year as the stock plummeted. Flying high last February, Enron was trading in the $80 range. After filing for bankruptcy last month, Enron's stock is less than a $1 a share. Now, make no mistake. Many 401(k) investors lost money. A deadly market destroyed retirement dollars for employees at Kmart Corp., which has seen a tumble in stock price on rumors of a bankruptcy. Employees elsewhere got hit by falling stock prices, too, including at Lucent Technologies Inc. and Quest Communications International Inc. Kmart matches employee contributions with company stock. And employees are allowed to buy additional company stock in the plan. Kmart employees have lost thousands of dollars as the Kmart stock fell about 80 percent in the past year. The 52-week high was $13.55. Kmart closed Tuesday at $2.45, down 39 cents a share. Yet "nothing ever jelled in the media the way Enron did," said Shean Hanna, editor of 401kwire.com, which tracks 401(k) data. It would be nice to think that an Enron ending couldn't happen where you work. In some ways, it might be true. Enron is embroiled in charges of financial irregularities. But any company's stock can fall off a cliff. Advisers have said for years that you should have no more than 10 percent to 20 percent of your money tied up in your company's stock. Now, only common sense stops you from buying more. Only a few plans limit how much company stock they'll allow you to have in the plan; some companies do not offer company stock in their 401(k) plans. Federal-Mogul Corp.'s stock price had plummeted so much that last summer the company took the highly unusual step of prohibiting employees from buying any more company stock in their 401(k) plans. It stopped matching contributions with stock. Instead, it made contributions in cash. The action took place before Federal-Mogul's bankruptcy filing last October. Post-Enron, some congressional leaders call for limiting employees to investing no more than 10 percent or 20 percent in any one stock in a 401(k). One bill would let you sell stock you got as a company match after waiting 90 days. Sensible advice. But do we need a law requiring it? "What we're getting down to here is legislating intelligence," said Michael Scarborough, head of the Scarborough Group, which manages 401(k)s for individuals. Oddly, some people cannot stop themselves when it comes to company stock, be it Enron or Southfield auto supplier Federal-Mogul or Ford Motor Co. "You'd be surprised at how many people don't know what to do with their money," said John Rayburn, 42, a maintenance supervisor at Visteon's Rawsonville plant. Rayburn of Westland says he regularly advises coworkers not to load up on company stock. Of course, some folks feel more comfortable betting on their own company, even though that's like sitting tight at one favored slot machine. One stock is more risky than a broadly-based mutual fund. Then, there's greed. Everybody talks about the Microsoft millionaires. No one forced employees to buy all the Enron they could in their 401(k) plans. According to early reports, Enron's 401(k) wasn't unusual. They had other mutual fund offerings in the plan, Hanna said. But employees loaded up on Enron stock nonetheless. "They see the person in the next cubicle who has earned huge returns on company stock. And they want the same for themselves," Hanna said. Ted Benna, who created the 401(k) plan, is so concerned about the fall in retirement dollars that he says he'd like to see a rule that would not allow anyone to buy their company stock in a 401(k). It's harsh, but he says his idea is more manageable than the nightmare that would be created trying to make sure that no one has more than 20 percent in company stock. Tough talk, though, could mean tough-to-digest changes ahead. Major companies like to give employees stock to create a somewhat loyal group of shareholders. Individuals like betting on their companies. Many don't want the government to tell them where to put their money. And many 401(k) experts warn that some companies will stop matching employee contributions if they can't use stock. Cash is more costly than stock. It's touchy. So touchy that even 401(k) powerhouse Fidelity Investments declined to comment on some proposals. But Enron has put the fear of 401(k)s in all of us. Bet on at least some tinkering in the rules. ___________________________________________ Contact SUSAN TOMPOR at 313-222-8876 or tompor@freepress.com.