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Judge Ends Enron Executives' Control of Employee Pensions

By: Leslie Wayne
The New York Times, April 20, 2002

The judge overseeing Enron's bankruptcy case granted a request from the Labor Department yesterday to remove the company's executives as trustees of employees' pension plans and hire an independent money manager.

The decision ends a feud between the government and Enron and will bring in the State Street Corporation, based in Boston, to manage the 401(k) and pension plans for 40,000 Enron employees, whose retirement savings plunged in value as Enron collapsed.

"Today's court action is a victory for Enron employees," said Elaine L. Chao, the labor secretary. "We've worked long and hard to remove the former Enron trustees and replace them with independent leadership which will aggressively protect Enron employees and retirees and the assets of their retirement plans."

The plan is now administered by Enron executives who are also being investigated by the Labor Department in connection with their management of the plans and their decision to invest large amounts of the plans' assets in shares of Enron.

The ruling by Judge Arthur J. Gonzalez ends legal maneuvering that began last month when Enron pulled out of an agreement it had reached with the Labor Department to hand over management of the plans to State Street and to pay the estimated $2.7 million in annual fees and other administrative costs.

In an appearance before Judge Gonzalez, labor department lawyers said that Enron had backed out of the deal and was refusing to pay the annual costs on the ground that the pension plan should cover the fees. Eugene Scalia, the Labor Department's solicitor, said in a letter to Enron that Enron had "embarked on a course two months ago to deceive the government by entering an agreement that it had no intention of honoring."

Judge Gonzalez's decision transfers the plans to State Street but left open the question of who would pay the fees. For the moment, they will be paid by the plans, which had assets totaling $2.6 billion as of December. Labor department officials, however, said that they would continue to press Enron to pay them.

In a conference call with reporters after the ruling yesterday, Labor Department officials stressed that they were continuing an investigation of the management of the Enron pension plan, especially into the decision by the plans' trustees to invest heavily in Enron shares and whether these executives were acting in the best interests of Enron employees.

"This is not the end of the story," said Ann Combs, an assistant secretary of labor. "We are aggressively pursuing the next stage of the investigation. We have come to the conclusion that Enron fiduciaries were not fit to remain in that position."

Specifically, Ms. Combs said the investigators were looking at the period when Enron employees were barred from selling Enron shares from their 401(k) plan because it was switching administrators. In addition, Ms. Combs said investigators were examining the conduct of specific trustees, including one Enron trustee who testified before Congress that he was alerted to Enron's poor finances but did nothing to protect the employees' investments.

Mark Palmer, a spokesman for Enron, said yesterday: "We've been working hard to rectify this situation. We look forward to getting it behind us."

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