Firms Easing Restrictions on 401(k)s

Companies already are loosening restrictions on workers selling company stock in their 401(k) plans as scrutiny of retirement plans increases after the Enron Corp. debacle.

International Paper Co. and newspaper publisher Gannett Co. recently said they will allow employees to sell company stock in their 401(k) accounts much more quickly than has been allowed. San Francisco-based ChevronTexaco Corp., the nation’s second-largest oil company, said it will make similar changes in April.

Pension experts said they expect these companies to be the first among many to revise rules related to selling company stock within 401(k) plans.

“I can tell you without question that there are going to be more companies like Gannett that will loosen the restrictions in their plans,” said Michael Scarborough, chief executive of Scarborough Group, an Annapolis, Md., savings plan management firm.

The changes come as more than a dozen bills are being proposed in Congress that would limit holdings of employer stock in employees’ 401(k) plans, provide employees with greater rights to sell company stock and increase employer liability for retirement plan losses of workers whose assets are invested in company stock.

“Companies want to do what’s right before the government tells them what to do,” said Robyn Credico, defined-contribution plan practice leader for the Eastern division of Watson Wyatt Worldwide. “They want to do it when they believe it’s the right time, rather than being told.”

International Paper had been considering its changes for more than a year--long before the Enron failure prompted a wave of proposals for reforming 401(k)s, company officials said.

But a Gannett spokeswoman said changes to the company’s plan were directly related to Enron’s situation.

“The fact that employees were hurt so badly at Enron caused everyone to look up and say, ‘Gee, maybe we’d better fix this,’” said Tara Connell, Gannett’s director of communications. “Nobody really thought about it before. All of a sudden, it was just there.”

About 2,000 employers offer company stock through their 401(k) plans, according to the Employee Benefit Research Institute in Washington. About 60% of those firms have some sort of restriction on when employees can sell company stock they received as a matching contribution.

Companies usually allow employees wide latitude in selling company stock purchased with their own 401(k) contributions.

However, company stock given by an employer as a matching contribution usually can’t be sold until employees reach a certain age or are with the company a certain number of years.

The most common restriction bars employees from selling until they’re 50 or 55, said Paul Heller, head of the defined-contribution business at mutual fund company Vanguard.

“The spirit of that provision was that companies were giving the employees stock for retirement and they wanted them to keep it for retirement,” Heller said.

Gannett said last week that it would allow employees to sell the company stock they receive through matching contributions immediately, instead of making them wait until age 55. ChevronTexaco will do the same when its new plan is implemented.

International Paper, which contributes to its 401(k) solely in company stock, said that its matching contributions will be made only half in company stock and that workers will be able to sell half the stock they get through the match immediately, if they choose.

Many firms had been contemplating changes before the Enron crisis, in part because they are trying to incorporate financial advice for workers into their 401(k) plans.

“When you add financial advice into your plan, the company stock issue hits you right in the face,” Heller said. “Everyone will tell you it’s a bad idea to have too much of your assets in one company’s stock.”

The Enron meltdown--which cost employees as much as $1 billion in retirement savings when the company’s stock collapsed--may have stepped up the pace, however, said Dallas Salisbury, president and chief executive of the Employee Benefit Research Institute.

“What an Enron situation tends to do is take an issue that may have been on the back burner for years and suddenly move it from the 14th priority to the highest priority for review,” Salisbury said.

Heller said at least 10 of Vanguard’s big 401(k) clients have started to remove restrictions on selling company stock and many more are discussing it. “It’s a definitive trend,” Heller said.

Even though some companies are taking the initiative on 401(k) reform, backers of pension legislation said Congress still needs to take action.

“Enron is not the first case like this,” said David Sandretti, communications director for Sen. Barbara Boxer (D-Calif.), who has submitted a bill that would bar workers from investing more than 20% of their 401(k) assets in their own company’s stock.

“We are going to see it again, unless we do something,” Sandretti said. “People should be encouraged to invest and save their own resources for retirement, but some responsibility needs to be imposed on the system.”