401K Planning Information

Enron’s legacy: How safe is your 401K?
AARP Bulletin (www.aarp.org/bulletin)

The sudden collapse of Enron Corp. in which many workers and retirees lost their retirement savings, is leading employee advocates to ask:

How safe are American workers’ 401k assets considered by many to be the cornerstone of a successful retirement plan, when a company goes belly up?

“There are no guarantees,” acknowledges David Wray, president of the Profit Sharing/401k Council of America, based in Chicago. ‘The 401K is about investing and getting the returns. It’s a wealth accumulation program,” he says, “and you can’t have wealth accumulation and protection at the same time.”

Employees at Enron learned that the hard way. Hundreds of them not only lost their jobs but their 401k retirement funds, largely made up of company stock now worth under a dollar a share as well.

Since the Enron debacle, lawmakers and advocates are seeking greater protections from Congress for workers’ and retirees’401K benefits. They are also urging America’s largest corporations to rethink how they fund their employees’ retirement plans. Others are questioning the very notion of do-it-yourself retirement planning.

Critics say companies should provide independent financial advisers for employees or cap the amount of company stock in a workers’ plan.

Enron, the Houston based energy trading firm touted by many financial experts as a wise investment, offered its employees a variety of retirement plans that relied heavily on the performance of its stock. The company’s 401k matched employee contributions, up to a specified limit, with Enron stock. Employees weren’t allowed to sell those matching shares until they reached age 50. Employees’ savings swelled as the company’s stock soared during the late 1990’s, peaking in 2000 at $90. But share prices plummeted last fall after accounting irregularities were discovered, triggering a probe by the U.S. Justice Department.

Employees and retirees were barred from selling their shares for 30 days during the stock’s turbulent decline and in December Enron filed for bankruptcy protection. Workers and retirees saw their savings vanish as Enron, one of America’s largest companies, folded.

At a recent Senate hearing, Enron employees and retirees testified to losing hundreds of thousands of dollars, for many, their life savings. One retiree, roger Boyce, 67, told the AARP Bulletin that the $2 million he had accumulated during his 30 year tenure at the company was nearly depleted. “We’ve gone through the shock and self-pity,” he says. “We wanted to travel, but you have to change your lifestyle and move on.”

Ric Edelman, the author of five books on financial security, say many 401K plans that were loaded with company stock have failed over the years. But “Enron was particularly abysmal.” he adds, because it prevented employees from liquidating their shares until age 50. “These rules do nothing to protect the American worker,” Edelman says, and must be changed.”

In the wake of the Enron disaster, Sens. Barbara Boxer, D-Calif., and Jon S. Corzine, D-N.J., introduced a bill to limit to 20 percent the amount of company stock that could be help in a worker’s 401K plan. Federal law limits holdings of company stock in other types of pension plans to 10 percent. Those laws don’t apply to 401k investments.

Protecting your 401k

Financial planners suggest these strategies:

Diversity. If your company matches 401K contributions only with its stock, invest elsewhere with your own funds.

Don’t put more than 10 percent of your overall investment in any one company, says Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.

Consult a financial expert about your investment stategy.

Be aggressive in building your 401K plan when you’re young, advisers say, but as you approach retirement, use a more conservative stratgey to avoid short-term market volatility.

Securing your future

One of the best ways to protect and understand your retirement future is to develop a solid, dependable and adjustable retirement plan. Our methods and processes will give you peace of mind for your retirement future.

Go to our retirement services page for more information now.