Enron Lawsuit to Push Limits of Corporate Pension Plan Laws
The Department of Labor has filed suit against Enron Corporation and individuals who were directors and other executives of the now bankrupt conglomerate, alleging that the company violated pension laws by mismanaging employee retirement funds.
The lawsuit calls for Enron to pay company employees hundreds of millions of dollars as a result of a company policy that prevented employees from changing their invested retirement money from company stock to a different investment.
Enron prevented employees from selling the Enron stock in their 401(k) plans until they reached age 50. In addition, Enron locked down its company 401(k) plans on October 17, 2001, the day after the company's financial difficulties were made public. Once the lockdown was in place, all employees were prevented from changing the investments in their company retirement plans from Enron stock to anything else.
Many have argued that Enron took unfair advantage of employees by loading the 401(k) plans with company stock, then preventing employees from making a profit in the marketplace by locking down the plans when the stock took a nosedive. Enron employees had an average of 63% of their 401(k) plans tied up in Enron stock. Others have countered that the Enron employees didn't lose anything of their own - that the stock was given to them by their employer in the first place as opposed to stock that the employees purchased with their own money, and that the stock was overvalued in the marketplace all along, so it was the inflated value that was misleading, not the after-crash value.
The federal government has decided to take the position that Enron owes something to the employees who lost 401(k) money in the Enron collapse. "The Department of Labor, for the first time in its history, is requiring a company to apply a new standard for evaluation of its own stock when held in a retirement plan," said Michael Birrer, an attorney representing former Enron CEO Kenneth Lay.
Congress is attempting to legislate company investments in 401(k) plans. Senator Ted Kennedy (D-MA), has proposed the Protecting America's Pension Act (S 1992) which would require a company to let employees sell company matching stock in a 401(k) plan after the employee is a plan participant for three years. The bill would also require companies to insure against losses in 401(k) plans and to give 30 days notice prior to instituting an Enron-type lockdown.