Battling Over 401(k) Reform


President Bush's call for a review of pension rules in the wake of the Enron Corp. debacle makes some kind of 401(k) reform more probable, experts said, but there remained sharp disagreement Thursday about what form those changes should take.

Enron workers lost an estimated $1 billion in 401(k) retirement savings, much of it invested in company stock, when the Texas energy company spiraled into bankruptcy late last year. Lawmakers, including Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.), have introduced legislation that would restrict the amount of company stock in 401(k) plans, allow employees to freely sell their company shares and provide workers with more information about the need to diversify their investments.

At a news conference Thursday, Bush said he ordered his economic team to "come up with recommendations how to reform the system to make sure that people are not exposed to losing their life savings as a result of bankruptcy, for example."

Bush is giving the idea of reform "the presidential seal, which obviously gives it more priority," said Dallas Salisbury, president of the Employee Benefit Research Institute.

Bush's move was hailed by the American Benefits Council, an employers' trade group that opposes the Boxer-Corzine bill. The council hopes any reforms proposed by the Bush administration will be less disruptive to company-provided plans than Democrats' proposals.

"This is an opportunity to ask and answer the right questions before hasty legislation is enacted that might have unintended negative consequences," said council president James Klein.

Klein warned that any new restrictions could discourage employers from offering 401(k) plans, or prevent companies from making matching contributions. Companies aren't required by law to offer 401(k) plans to their workers, or to make matching contributions.

Other groups said the review should make clear that workers need better education about the risks of putting too much of their retirement money in a single stock, as well as more freedom to sell company stock.

In a 401(k) plan, workers save for retirement by contributing part of their paychecks to a tax-deferred account. Part of the contributions are often matched by the employer. The plans typically offer a choice of investments, although many larger firms make their matching contributions in company stock and prevent workers from later selling those shares.

Those restrictions need to be lifted so that workers can properly diversify their accounts, said Barbara Roper, director of investor protection for the Consumer Federation of America. The Boxer-Corzine bill would give employees the right to sell company shares 90 days after receiving them.

"Companies should not be allowed to shift the responsibility for retirement onto employees and then tie [workers'] hands when they try to exercise that responsibility," Roper said.

That sentiment was echoed by the National Center for Employee Ownership, an Oakland nonprofit that promotes company stock purchase plans for workers. Employees shouldn't be forced to hang on to stock "if it's going to cause them an insecure retirement," said Scott Rodrick, a center spokesman.

The American Society of Pension Actuaries, which represents benefit plan professionals, also supports loosening restrictions on the sale of company stock in 401(k) plans. But a group spokesman says lawmakers need to find a way to protect workers without causing employers to drop the plans.

"What we don't want to do is overreact so that we're making it harder to save for retirement," said Brian Graff, the society's executive director.

One of the Boxer-Corzine measures--capping company stock at no more than 20% of a plan--drew fire from all sides as unfair to workers and potentially unworkable. Klein said the rule would punish employees whose companies perform well.

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