Ex-Employees Questioned on 401(k) Plan

The Labor Department is questioning former Global Crossing Ltd. workers about the bankrupt company’s 401(k) retirement plan, apparently to determine if any pension laws were broken.

Former Global Crossing employees said this week they have been contacted by Labor Department investigators, who asked for copies of documents distributed to workers describing the company’s 401(k) plan and its features.

The investigators “said that they were opening an investigation into Global Crossing’s 401(k) program and [were] very interested in any additional information that they could glean from any present or former employee,” said one former employee, who asked not to be identified.

Global Crossing workers lost about $250 million between 1999 and 2001 when the value of the company stock in their 401(k) accounts tumbled from a peak of $64 to 30 cents before the company filed the fifth-largest bankruptcy in U.S. history Jan. 28.

A Global Crossing spokeswoman said the company had been contacted by Labor Department investigators and was cooperating.

“Our [attorneys] will work to provide all necessary information and answer any questions [investigators] may have,” said spokeswoman Janis Burenga.

The Labor Department routinely examines the retirement plans of companies that have filed for bankruptcy to make sure employees’ retirement money is safe and being properly distributed as companies reorganize, said department spokeswoman Gloria Della. Della would neither confirm nor deny that such an investigation was taking place at Global Crossing.

The telecom giant, which is based in Bermuda and has executive offices in Beverly Hills, is under investigation by the Securities and Exchange Commission and the FBI for its accounting methods. In addition, members of Congress have demanded investigations into the company’s retirement plans, and employees have sued over losses in their 401(k) accounts.

Global Crossing employees said labor investigators also questioned them about the company’s severance packages. Global Crossing cut off severance pay to thousands of laid-off workers when it filed for bankruptcy, but in the preceding months forgave loans and made $15 million in lump-sum pension payments to certain executives.

Regulators simply may be making sure employee contributions were deposited into the 401(k) plan, said Los Angeles pension lawyer Alex Brucker. Troubled companies sometimes illegally use 401(k) contributions to pay bills, although such behavior is far more common at small, private companies than at large, publicly traded firms, pension lawyers said.

Global Crossing spokeswoman Tisha Kresler said all employee contributions have been properly deposited in the plan.

Labor investigators also may be probing whether employees were advised of the risks of investing in company stock, which at one point made up more than half the 401(k) plan’s assets, pension experts said.

Rep. George Miller (D-Martinez) asked the Labor Department last week to determine whether any of the trustees of Global Crossing’s savings plan were aware of the company’s financial problems and what steps the trustees took, if any, to protect employees.

Miller also plans to introduce a bill today that would require executives who sell company stock to alert company employees and pension officials within 24 hours.

Rep. Louise McIntosh Slaughter (D-N.Y.) has requested a congressional inquiry into Global Crossing’s decision to freeze workers’ 401(k) accounts for a month before the bankruptcy.

This legal but controversial practice, known as a lockdown, was used by both Global Crossing and bankrupt energy trader Enron Corp. when the companies switched plan administrators.

Several lawmakers have introduced bills that would limit how long lockdowns can last.

Global Crossing’s stock already had lost 99% of its value by the time its lockdown began Dec. 14. Global Crossing’s 401(k) plan was typical for a large firm, offering a range of investment options including stock and bond mutual funds as well as company stock.

Both firms matched their employees’ contributions only with shares of company stock, however, and placed restrictions on workers’ ability to sell those shares. Consumer and pension rights advocates say such restrictions--also not uncommon among employers--prevented many employees from diversifying their accounts.

In December, Global Crossing lifted restrictions on employees’ ability to sell company shares in their 401(k)--long after most of the shares’ value had disappeared. Even then, many employees did not sell their shares, saying they were told by executives that the stock price would recover.