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Judge Says Enron's Staff Must Cover Pension Fees

By Kurt Eichenwald, The New York Times

March 24, 2003

The federal judge overseeing the bankruptcy of Enron ruled on Friday that the company could not pay fees to an independent overseer of three retirement plans for current and former employees. Instead, the judge said, participants in the plans must pick up the costs themselves.

Enron's creditors, who lose money for every dollar spent on other matters, have strongly opposed such payments.

Enron employees — many of them heavily invested in the company's stock — lost millions of dollars in their retirement plans when the company collapsed into bankruptcy in December 2001. Rapidly, they became symbols for the damage inflicted on investors who had trusted the company with their life savings. Enron collapsed soon after restating its earnings and cautioning investors that its financial statements dating back as far as 1997 could not be relied upon.

In his ruling in New York, United States Bankruptcy Judge Arthur J. Gonzalez recognized the damage inflicted on investors, but said that the law did not permit him to place the costs for the plan administration onto Enron's estate.

"The court recognizes that plan participants may be disappointed and frustrated by the potential for an added financial burden," Judge Gonzalez wrote in a 44-page ruling. "However, the record does not support that such disappointment and frustration standing alone demonstrate a basis for the exercise of sound business judgment."

The motion to allow Enron to pay the fees — which amount to about $4 million a year — was made by the company and by the Department of Labor. Judge Gonzalez left open the possibility of reconsidering his ruling if a motion was made by State Street, the Boston money management firm that is administering the plan.

According to Enron, employees would pay an average of about $320 a year for the administration of the plan, although that amount could rise as the company continues to reduce its work force.

The dispute over the fees dates to late 2001, when the Labor Department opened an investigation of the management of Enron's retirement plans. To resolve that matter, in 2002 Enron agreed to replace its internal committee that oversaw the plans with State Street. As part of that deal with the Labor Department, Enron also agreed to pay the firm's fees.