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Bush Seeks New Rules On Pensions
President Bush will propose today giving workers greater freedom to diversify their company retirement accounts, part of a package of pension safeguards that represent the administration's first concrete response to issues raised by Enron Corp.'s collapse. Under the administration's plan, officials said, workers would be permitted to sell company stock after three years -- even those shares contributed by companies as matching grants -- and pursue other investment options, while companies would be encouraged to make outside financial advice available to employees. Administration officials said Bush would also propose "pension parity," in which top executives would be forbidden from selling company stock during "blackout" periods when lower-ranking workers may not trade such stock in their 401(k) plans. The proposal is aimed at protecting workers from the dilemma of Enron employees who watched the company's stock plummet last fall but were unable to switch to other investments, even as top executives cashed out. "All of these proposals would not necessarily have applied to Enron, but we believe this plan addresses the major pension-related problems the Enron situation highlighted," a senior official said. Bush's plan, to be unveiled at a retreat for House Republicans, constitutes a presidential effort to take the offensive on an issue that is the subject of a dozen investigations on Capitol Hill and that Democrats believe could prove a liability for GOP candidates this fall. Bush, who has come under attack from Democrats for his ties to the bankrupt energy company, has tried to deflect questions about those connections by promising changes in pension rules to protect workers. "Employees who have worked hard and saved all their lives should not have to risk losing everything if their company fails," he said in his State of the Union Address Tuesday. The speech did not mention Enron by name. Congress must approve Bush’s proposals. Some of the ideas are largely symbolic: Employers would be required to give workers quarterly benefit statements that include information on individual accounts. Such statements are now required annually. Pension experts said Bush's plan does little to address the larger issues of retirement security. A 401(k) account is a tax-deferred retirement savings program that leaves employees on their own to participate and make the proper investments. About 42 million Americans have such accounts. The experts said Bush's proposal contains a loophole big enough to possibly allow "future Enrons," in part because workers could lose the protections if an employer converted a 401(k) plan into an employee stock ownership plan. David M. Certner, federal affairs director for AARP, said the plan "takes one small step but leaves the fundamental problem unaddressed," which is that employees' holdings are likely to remain concentrated in their employers' stock. The president's proposals would address two key issues that emerged in the Enron collapse: company rules that bar employees from selling shares of company stock given to them under a company matching program; and periods of time, sometimes called lockdowns, in which workers' 401(k) accounts are frozen while the employer makes technical changes, such as changing plan administrators, as was the case at Enron. Enron's 401(k) plan had nearly 21,000 participants, and at the end of 2000 held $1.3 billion worth of Enron stock. That stock is now virtually worthless. In Enron's plan, the company matched a portion of each worker's contributions to the 401(k) in company stock, but it forbade workers from selling those shares until they reached age 50. Thus, younger workers, even if they foresaw the company's decline, could not sell that portion of their holdings. Enron also locked down its 401(k) plan for several weeks in late October to change plan administrators. The company has denied that this was anything more than an administrative matter but the freeze took place as Enron stock was plunging, and the Labor Department is investigating whether the timing violated federal pension fiduciary requirements. The Bush recommendations would impose on employers a fiduciary responsibility for workers' investments during a blackout period. By law, employers are not responsible for the results of workers' investment decisions when the plans are controlled by workers. Bush will also endorse a bill approved by the House -- long opposed by some labor unions -- that would encourage employers to make independent investment advice available to workers. Some labor and consumer groups contend that mutual fund companies and other investment firms would not give objective advice while collecting fees for the 401(k) funds they manage. Lawmakers from both parties, responding to public anger over Enron employees' huge losses, have introduced bills that would change how employees would invest their retirement savings. A bill sponsored by Sens. Barbara Boxer (D-Calif.) and Jon S. Corzine (D-N.J.) would limit to 20 percent the investment an employee could have in any one stock as part of an individual retirement account and would cut in half the tax deduction companies get for matching an employees' contribution with stock. Rep. John A. Boehner (R-Ohio), by contrast, is pushing a proposal making it easier for companies to provide retirement investment advice to workers. Reps. Rob Portman (R-Ohio) and Benjamin L. Cardin (D-Md.) plan to introduce a bill as early as today that would provide tax incentives for companies to educate their employees about investments, greater rights for employees to sell company stock, and earlier notice of when a company restricts the sale of stock within a retirement account FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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