House OKs Worker Retirement Savings Protections

WASHINGTON —  A divided House on Thursday approved new rules designed to better protect the retirement savings of American workers, the first Enron Corp.-inspired reform to pass since the collapse of the energy giant.

The Republican-sponsored measure, approved 255 to 163, contains key elements of a proposal advanced by President Bush to spare American workers the same fate as Enron employees, whose retirement nest eggs vanished when the highflying Houston company filed for bankruptcy protection.

The measure would give employees new rights to sell company stock and diversify investments in their 401(k) retirement accounts. It will go to the Democrat-controlled Senate, which is expected to take up a more stringent proposal.

Lawmakers are under election-year pressure to do something about the problems exposed by the Enron collapse. Democrats and Republicans want to be seen as reformers rather than recipients of the politically aggressive company’s campaign contributions. Even as the retirement bill was being passed Thursday, a House committee pressed ahead with legislation to increase oversight of accountants and impose new financial disclosure requirements on corporations.

“With Enron large in legislators’ minds, I believe they ultimately will pass a pension bill that the president will sign,” said Larry Soderquist, a Vanderbilt University law professor.

But even as it was being approved, the House measure came in for sharp criticism. Democrats and independent retirement policy experts argue that it does not come close to solving the Enron-related problems and includes little-noticed provisions that could make similar financial debacles more, not less, probable.

Among other things, critics say, the measure would encourage the use of financial advisors who could have conflicts of interest, such as receiving commissions on the investments they recommend to workers. The critics also say it could undermine rules intended to ensure that most of the benefits in tax-favored pensions and 401(k) plans go to lower-paid workers rather than top executives.

“This measure opens the door widely to the problems it claims to fix,” said Daniel Halperin, a former Treasury official and pension expert at Harvard Law School.

Forty-two million employees own 401(k) accounts with $2 trillion in assets, and new safeguards to protect retirement plans have been among the most hotly debated issues emerging from the Enron collapse. Under 401(k) plans, named for a section of the Tax Code, workers are offered tax breaks to set aside money for retirement. Their employers also are offered breaks for matching employee contributions--often in company stock.

Enron employees lost as much as $1 billion of retirement savings when the value of the company stock, which made up more than half the total in their accounts, plummeted and they were unable to get out of the stock because of company restrictions on selling it. Their losses were all the more galling because executives, who knew of the company’s mounting troubles, sold large blocks of stock even as they exhorted their employees to keep buying shares.

Under the House measure, companies would have to permit employees to sell company stock contributions on a rolling basis after three years. Currently, companies can impose much stricter limits. Enron, for example, required workers to hold company stock until they were age 50.

The bill’s authors said the change would help keep workers’ accounts from becoming dangerously concentrated in company stock and would update antiquated federal laws.

Enron workers were “the victims of outdated federal pension laws,” said Rep. John A. Boehner (R-Ohio), chairman of the House Committee on Education and the Work Force.

But some policy experts said the three-year holding period was too long. “The paramount threat to sound diversification of retirement accounts is over-investment in company stock” and the House measure does not fix the problem, said J. Mark Iwry, a former Treasury official who oversaw employee-benefits regulation from 1995 to 2000.

“Why should there be any restriction?” asked Michael S. Gordon, a Washington pension lawyer who helped write the landmark 1974 law that regulates traditional company-sponsored pensions.

Even without restrictions, pension experts agree that most workers hang on to more company stock than they should--because it is familiar and because they receive little investment advice from their employers, who want to avoid becoming legally liable for the performance of their workers’ retirement accounts.

The House measure would encourage companies to make investment advice available to workers, but would do so in a way that has provoked criticism. The bill would permit advisors to steer employees to investments in which they have a financial stake as long as they disclose that stake. Critics said the measure also would permit companies to hire advisors who would not help workers in handling company stock.

“The advice provisions of the bill wouldn’t prevent another Enron situation, at least in part because they don’t preclude employers and advisors from contracting to limit advice,” Iwry said.

Despite such concerns, the president praised the House measure Thursday, saying in a statement, “The reforms will give employees better access to investment advice, additional notice of blackouts and increased ability to diversify. Importantly, the reforms adhere to the principle that what is right for executives is also right for workers.”

The House bill also bars senior executives from selling stock during so-called blackout, or lock-down, periods, such as the one that kept Enron employees from selling shares when the company stock value plummeted. It also would require companies to give 30 days’ notice before a blackout period begins. Companies also would be required to give workers quarterly benefit statements that include information about accounts.

Sen. Edward M. Kennedy (D-Mass.), chairman of the Health, Education, Labor and Pensions Committee and author of the competing Senate bill, countered, “Sadly, the Republican-backed bill that passed the House fails to prevent future Enrons, and fails to protect worker pensions.”

Kennedy’s bill would set stricter limits on firms’ use of company stock to contribute to 401(k) accounts. It would, among other things, require company executives to notify employees when they are dumping company stock, give employees seats on pension boards and impose stiffer penalties for violations of worker pension rights.

But business groups and their Republican allies in Congress oppose the Democratic proposals, contending that they are too extreme and would discourage companies from offering 401(k) plans.

Some pension experts were incensed about a little-noticed provision of the House measure that they said would ease rules that require pensions and 401(k) plans to direct almost three-quarters of their benefits to lower-paid workers to qualify for tax breaks. The bill’s authors said that the change would make little difference.