Protect Nest Eggs With a Hard Shell

President Bush and his advisors have stared into the Enron abyss and have seen only a pothole. Their myopic view of the disaster has led them to recommend repairs to our retirement system that are less wrong than irrelevant.

They proclaim the need for freedom and flexibility--for instance, the right to sell shares after three years in a 401(k) plan--when only diversification, disclosure and strong legal remedies will prevent another Enron debacle, or at least assure some recourse if one does occur.

The Bush team claims to believe that the bosses at Enron handcuffed their employees. The employees were stuck with Enron shares either by the now-infamous lock-down or because they held employer-contributed shares that could only be sold by employees who had reached age 50. By contrast, the brass, who were in the know, sold their shares for tens of millions.

It’s a great story, but it’s nonsense.

The Enron officers and directors didn’t need to shackle the employees to their shares. Even while the officers were selling, the employees were eagerly buying new shares inside the 401(k) plan at fraud-inflated prices. Employees “bought high” because they weren’t told the truth: Enron was smoke and mirrors.

Meanwhile the insiders were selling, but at high prices available months before the lock-down kicked in.

There is not a shred of evidence that more freedom to sell shares would have helped matters. Almost 90% of the shares in the Enron 401(k) plan were subject to sale except during the brief lock-down that occurred after the stock had already collapsed.

The Bush administration’s other proposals are equally beside the point.

Regular account statements are a friendly service, but at Enron these statements would have merely reinforced the employees’ misimpression that they were getting rich, not robbed.

Likewise, the administration’s proposal to encourage employers to provide investment advice to employees in 401(k) plans misses the mark.

The proposal allows employers to hire advisors subject to conflicts of interest who might, under the law now in effect, be prohibited from advising employees.

No one believes that if these rules had been relaxed, Enron would have hired an advisor to persuade employees to sell their company shares.

Real reform requires that employees hear the truth.

Employees should have a right to know the material facts possessed by their employer and anyone else responsible for running their benefit plans. There is no reason to limit this right to employer stock investments in 401(k) plans. Rules against lying found in current law are not enough. The law should impose a clear, affirmative duty to disclose important information.

The administration proposal does no such thing.

Current law will not assure the Enron employees and other victims of pension plan misconduct meaningful remedies.

Benefit plan managers who violate the law and anyone who helps them injure employees--be they lawyers, accountants or the bagmen who set up phony partnerships--should be required to make whole the employees and the plans they injure.

The government should have even harsher remedies at its disposal to deter future misconduct, and whistle-blowers should have real protection from retaliation.

The administration experts know that the law omits these rights and remedies, yet their proposal is silent on these legal gaps.

It is time to say that tax-advantaged retirement plans are not the place for employees to risk everything on a single roll of the dice. Americans can invest in whatever they please, but the retirement system is heavily subsidized by the taxpayers to provide our citizens with a secure old age.

We receive value for our tax dollars only if we insist, not merely advise, that when employees take advantage of taxpayer-subsidized retirement vehicles, they do so responsibly. We must place reasonable limits on retirement plan investments in employer stock.