Enron Woes Prompt 401(k) Bill in Senate

Workers would be limited to holding no more than 20% of any one company’s stock--including their own employer’s--in their 401(k) retirement plans under legislation introduced by Senate Democrats on Tuesday.

The bill, co-sponsored by Sens. Jon Corzine (D.-N.J.) and Barbara Boxer (D.-Calif.), would force workers to diversify their retirement accounts by threatening them with the loss of tax deductions if they held too much of any one company’s stock in their accounts.

The legislation was prompted by the collapse of Enron Corp.

“We want to make sure that the life savings of our nation’s workers are protected, even when an employer’s stock collapses,” Boxer said. Enron employees, many of whom held the majority of their retirement assets in Enron stock, stand to lose at least $850 million, according to one lawsuit.

Enron shares are worth less than $1 today, compared with $90 a year ago.

The bill has no Republican co-sponsors. Some reportedly prefer a House-passed measure that ensures employees access to investment advice on their plans.

Pension experts cautioned against knee-jerk legislation.

“We should be cautious about overturning a system that has been tremendously beneficial for millions of Americans when we don’t even have all the facts about Enron,” said David Wray, president of the Profit Sharing/401(k) Council.

Although current law prevents corporate-run pension plans from holding more than 10% of assets in a company’s own shares, there are few restrictions on employee investment choices within increasingly widespread 401(k) plans.

With a 401(k), workers set aside their own money for retirement and make their own investment choices among the options offered by their employer.

Companies often match worker contributions in cash or company stock. Both company and employee reap tax benefits in the process.

For employees, the 401(k) money is taken out of paychecks before income tax is computed.

Companies, meanwhile, get to deduct their matching contributions as a business expense.

Although investors would be free to invest their nonretirement-plan assets as they choose, a spokesman for Boxer said retirement plans get special tax treatment, so the government can impose special requirements.