Pensions Right Center Statement

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WASHINGTON, DC 20036-6608
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What happened at Enron highlights some of the most glaring flaws in our nation's private retirement system. As the nation's consumer watchdog on pensions, the Pension Rights Center is committed to ensuring that the rights of employees in 401(k)s and other pensions are protected.

WHAT NEEDS TO BE DONE TO PROTECT AGAINST FUTURE ENRONS? Reforms should be enacted to close gaps in the law so that what happened at Enron cannot happen again, and to make sure that workers who lost millions of dollars in Enron get their money back.

The Enron situation also raises broader policy issues, such as whether there is an over-reliance on 401(k) plans in this country? And are individuals shouldering too much risk in these do-it-yourself savings plans? There are now 300,000 401(k) plans in this country with $1.8 trillion in assets and 42 million people covered by these plans - about one-third of the workforce. Half of participants in these plans depend on their 401(k) money as their primary source of retirement income over Social Security. It is time for a policy debate to examine the role of 401(k) plans in providing retirement security for workers.

THE PRC SUPPORTS THE BOXER-CORZINE LEGISLATION The Pension Rights Center, at a minimum, supports the Boxer-Corzine legislation that would ensure that if employers use company stock as matching contributions, employees will be free to move out of those investments within a reasonable amount of time, and would restrict how much of employee money can be invested in company stock.

OTHER REFORMS ARE ALSO NEEDED Protections against conflicts of interest. Too often the people who run the 401(k) plan are company officials - and that poses a dangerous conflict-of-interest. If the people running the plan wear two hats, they then are torn between their responsibilities to the shareholders to maximize profit, and their legal duty to operate the 401(k) plan in the exclusive interest of workers and retirees. If those running the Enron pension plan knew the company's stock was plummeting and allowed employees to load up on Enron stock, they would be in violation of their fiduciary duties. In addition to the Boxer-Corzine measures, a number of other possible reforms are being discussed such as requiring independent fiduciaries in all 401(k) plans holding company stock and barring companies from offering company stock as an option if employers used their own stock as matching contributions.

Protections to make employees whole for their losses. Even if a court finds that the people running the plan acted unlawfully, there is no guarantee that workers will be able to get their retirement income back. Unfortunately the law does not require that plan fiduciaries have insurance. And even if they do, it is not likely to be enough to cover the money lost to workers. Sure the fiduciaries may be personally liable but if they don't have the money to pay the 401(k) back, the workers could be out of luck. The law should be changed to require adequate fiduciary insurance. Also the "damages" employees can recover are inadequate, and do not serve as a deterrent to wrongful behavior. In addition, Enron employees whose life savings were tied in the 401(k), and others hurt in similar company bankruptcies, should have preferred status in bankruptcy proceedings rather than be treated the same as all other shareholders.

The Enron tragedy is a wake-up call to the public and policymakers to reexamine our nation's retirement income policies. When the market was soaring, everyone thought 401(k)s were gold. But now we need a national dialogue to determine whether these risky, uninsured plans are the right kind of plans to provide retirement security in today's volatile economy.