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No More Enrons: Protecting Pension Rights

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Enron cost thousands of employees not only their jobs, but also their entire life savings. Told that the company's stock was still a "good buy," 15,000 company employees held on while top executives made off with millions. When they finally caught on, it was too late. The employee fund was locked down due to "administrative changes" so that the employees had to stand by and watch their retirement savings disappear as Enron's stock plunged from more than $80 per share to less than $0.80 per share.

Without significant reforms, what happened at Enron could happen at many other companies. Enron employees on average had 62% of their 401(k) investments in company stock. This is typical of employees at many large corporations. But it is not wise. Most investment professionals counsel their clients to diversify their portfolio of investments in order to avoid extreme downside risks.

The lockdown on the Enron employees' retirement fund was perfectly legal. Thus, employees need protections from over-concentration, good investment advice, and advance notice of lockdowns.

See the Pension Fairness Act of 2003

Even with basic 401(k) protections, the current retirement system still depends upon a faulty premise: that employees should be responsible for bearing the risks of their own retirement.

Corporations have been handing top executives hefty retirement perks while aggressively stripping their workers and retirees of benefit after benefit. Companies that have set aside millions of dollars to safeguard the top brass' pensions while ceasing to contribute to their workers’ financially strapped pension plans include Delta Airlines, United Airlines, Motorola, Owens-Illinois, Altria (formerly Philip Morris), Fortune Brands and Abbott Laboratories.

In 1975, 71 percent of employee pensions were defined-benefit plans. That is, companies guaranteed their employees a fixed pension. In 1999, just 29 percent of employee pensions were defined-benefit plans. From 1975 to 2003, the number of employer corporations offering these pension plans declined from more than 100,000 to less than 31,000, according to the Employee Benefits Research Institute.

In place of defined benefit plans, employees are often offered defined-contribution plans, meaning that they get stocks for their 401(k) plans instead of fixed payments. This means that their retirement security is predicated upon the stock-market. As a result, corporations are no longer responsible for guaranteeing a decent retirement. (See by Jeff Faux (the American Prospect, June 17, 2002).

Unfortunately, the debate in Congress has never expanded beyond fixing the immediate problems demonstrated by Enron and never touched upon issues of whether employers should be responsible for fixed contributions or upon issues of why more than half of private-sector workers don't even have any pension or savings plan. As William Greider reported, "Labor Department officials have known the vulnerable spots in pension-fund protection for many years and regularly sent corrective amendments to Congress-ignored under both parties."

The Pension Preservation and Savings Enhancement Act of 2003 (H.R. 1776), informally known as the "Portman-Cardin bill", introduced by Congressmen Rob Portman (R-IL) and Benjamin Cardin (D-MD) was described by the Wall Street Journal as more of a business wish list than a serious effort to close the gap between the way executives and employees are treated.

For More Information:

Pension Rights Center
Economic Policy Institute
AFL-CIO
House Committee on Education and the Workforce (minority)
Retirement Rip-Off: Corporate America's Campaign to Reduce its Pension Costs by Philip Mattera (Corporate Research Project)

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