In the largest corporate bankruptcy in the nation’s history, thousands of Enron employees lost their retirement savings after the company stock invested in their 401(k) plans became worthless. Now, in the wake of Enron’s collapse, Congress is considering a raft of legislation to reform 401(k) plan rules.
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White House Proposals
The Bush administration reports that 42 million employees in the United States have 401(k) accounts worth $2 trillion. To safeguard those assets and the future of millions of employees and their families, President Bush has proposed a four-point retirement protection plan addressing these issues:
- Investment diversification. Employees would have more freedom to manage their retirement investments by being able to sell company stock and diversify their assets after participating in a company 401(k) plan for three years.
- Parity for executives and employees. Corporate executives would be held to the same restrictions as rank-and-file employees on selling stock during “blackout” periods. These occur when companies switch management of their accounts to a new investment firm. During the transition period, employees typically don’t have access to their 401(k) accounts and can’t buy and sell stock.
- Blackout periods. Bush proposes a 30-day notice allowing employees to modify investments before a blackout period. Employees would also receive quarterly information about their investments, their right to diversify and blackout periods.
- Investment advice. The president is urging passage of the Retirement Security Advice Act, which would encourage employers to make investment information available to employees and allow financial advisors to offer investment advice if they agree to act solely in the employees’ interest.
Congressional Legislation
In addition to the White House plan, a host of bills have been introduced in Congress with competing or overlapping provisions for changing rules concerning 401(k) plans and the contribution of company stock. Here are the highlights of the pending measures:
- H.R. 3642 would require 401(k) plan sponsors to give participants semiannual statements on the plan’s financial health and the importance of diversifying.
- S. 1838, H.R. 3640 and H.R. 3677 would limit the amount of employer stock held by employees in a 401(k) plan to 20% of account assets.
- Under H.R. 3463, company stock could not exceed 10% of the employer’s contributions to the 401(k) plan. Diversification of all employer stock would be allowed three years after its acquisition.
- Under S. 1919, employees could not be required to invest in employer stock. The bill would also bar corporate executives from trading company stock during lock-down periods and strengthen protection for company whistleblowers who make public or private inquiries about the rights of employees or retirees or regarding the plan’s administration.
- H.R. 3657 calls for immediate diversification rights for vested employer stocks. Defined contribution plan fiduciaries would be bonded in an amount sufficient to ensure coverage of financial losses. Plan trustees would have to be equally representative of the employer and employees if the majority of plan participants request it. The measure also creates an office of pension participant advocacy within the Department of Labor.
- S. 1921 requires that the plan provider present four different investment options, including three without employer stock.
- H.R. 3415 would amend the fed-eral Bankruptcy Code to remove limits on the amounts and time periods for filing claims involving wages and contributions to employee benefit plans.
We’ll keep you posted as these measures wind their way through Congress.