Paper Says Enron May Owe More in Pensions

By: Reuters
The New York Times, February 27, 2002

New York - U.S. taxpayers could be on the hook for much of the losses in failed energy company Enron Corp. (ENRNQ.PK) pension plan, the Wall Street Journal reported on Wednesday, citing staffers in Congress.

If the company's arrangement connecting its pension benefits to its employee stock ownership plan is found to be illegal, the pension plan could owe millions more dollars to participants, in which case the federally backed Pension Benefit Guaranty Corp. Could have to step in to pay the benefits, the Journal said.

Enron had a ``floor-offset'' arrangement between its pension plan and ESOP, in which benefits employees earn in one plan essentially erase benefits they earn in the other, the Journal said. Usually, employees get the value of whichever plan is worth more.

But Enron calculated the ESOP offsets in an unusual way, basing them on the price of Enron stock from 1996 to 2000, when it was trading between $37.75 and $43.44, the Journal said. It then used the higher locked-in values of the ESOP accounts to permanently cut the value of pensions that employees had earned between January 1987 and January 1995, the Journal said.

Now that the stock has become nearly worthless, the employees get nothing from the ESOP, and their pensions are still permanently reduced by the past value of the stock, the Journal said.

Should it turn out that Enron improperly reduced pensions it owed, its pension liability could increase by hundreds of millions of dollars, the Journal said.

The Pension Benefit Guaranty Corp. would step in to pay guaranteed benefits if Enron liquidates the plan, and it is underfunded, the Journal said.

Enron was not immediately available to comment.

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