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Posted: 1/28/2002 3:42:31 PM EDT
Actually, since I'm not an investor in Enron stock, much less one of their 401-K retirement programs, I haven't given the subject much thought. But I surely have heard a lot of screaming and shouting from the chattering classes. So what's the deal with Enron's 401-K retirement program? Was the 'fix' in, that permitted some Enron employees to sell their stock (the 'bigwigs'), but denied that right to others (the 'little people'). Here's an article that explains it all rather nicely! [size=4]Enron’s 401(k) Calamity[/size=4] [b]Enron’s retirement meltdown is tragic. We don’t yet know if it’s criminal.[/b] By Michael W. Lynch "The human impact is staggering," writes CNN’s Bill Press of the Enron collapse. Press details the losses to investors and loss of jobs before landing on the 401(k) wipeout. "Those 11,000 employees whose 401(k) funds were invested exclusively in Enron -- and who were forbidden by Enron’s own rules from diversifying -- today have no retirement plan at all." The misinformation is staggering as well. Nothing that Press, a Democratic hack who earns his living turning every world event to partisan advantage, says about the 401(k) plan is true. Eleven thousand employees participated in Enron’s plan, which offered a range of investment options. These employees were not invested exclusively in Enron stock, and they were not forbidden from diversifying. It is illegal for a company to force any employee to use more than 1 percent of salary to purchase stock, and as a practical matter, none do. Press’s claims are extreme, but not wildly unrepresentative of others made about Enron’s 401(k) disaster. And people are demanding action. New York Times columnist Paul Krugman has used Enron to call into question the whole idea of defined-contribution pensions. "It’s easy to make the theoretical case for defined-contribution plans," writes Krugman. But he later adds that "the sad fate of Enron’s employees highlights the difference between theory and practice." He’s not alone. "One issue raised by the whole Enron debacle is how realistic is the concept of do-it-yourself investing," Karen Ferguson, director of the Pension Rights Center, told The New York Times. And members of Congress have rushed to legislate our way to financial safety. In the Senate, Jon Corzine (D-N.J.) and Barbara Boxer (D-Calif.) want to limit the amount of employer stock that can be held in 401(k) plans to 20 percent of the total investment. In the House, Peter Deutsch (D-Fla.) and Gene Green (D-Texas) want to set the cap at 10 percent. Here are some facts. Enron maintained a rather typical 401(k) plan for a company of its size. It offered a selection of 20 investment options, Enron stock being one among them. It matched 50 percent of employee contributions up to 6 percent of salary with Enron stock. (And remember, the employee’s own contribution didn’t have to be invested in Enron stock.) Employees couldn’t sell stock that Enron gave them until they turned 50. They were not prohibited from selling Enron stock that they purchased with their own money. At the end of 2000, 62 percent of the value of employee 401(k) plans were held in Enron stock. (This is risky, but not unique. Procter & Gamble’s fund is 95 percent company stock, according to a recent survey by DC Plan Investing. General Electric’s is 77 percent.) - continued -
Link Posted: 1/28/2002 3:43:42 PM EDT
In early 2001, Enron decided to contract out its 401(k) administration to an outside company. The transfer required a freezing of accounts, which took place over a period in October and November. The time frame is under dispute, and is the subject of many lawsuits. The company claims the period was 12 trading days, from October 26 through November 12. One employee has testified that accounts were frozen as early as September 26. One lawsuit claims that different accounts were frozen for different time periods. Another claims the lockdown started on October 17. This general period was horrible for Enron. Some of the highlights: On October 16, it announced that it had to take a $1.1 billion charge for bad investments. On October 22, the Securities and Exchange Commission (SEC) announced a probe of Enron. On October 29, Moody’s downgraded Enron’s credit ratings. On October 31, the SEC upped its probe to a full-fledged investigation. On November 8, Enron reduced its claim for net income since 1997 by 20 percent. On October 26, the day Enron claims it froze its 401(k) accounts, its stock was at $13.81. By the time 401(k) investors could sell again, the stock was at $9.98. This lockdown is troubling, but the facts are murky. Enron claims it was routine and previously scheduled. But considering events, one would think that prudence should dictate that Enron postpone the transfer until less tumultuous times. One retiree claims Enron pushed its stock aggressively. But another retiree who left his entire account in company stock says he was advised to diversify. Did executives push stock on employees while selling from their portfolios? We’ll know more someday, as the Federal Trade Commission, the Department of Labor, and a gazillion attorneys are all investigating the issue. As crushing as these losses are, they don’t impugn defined-contribution investing, which offers Americans much freedom in practice, not just in theory. And calls for more regulation will only increase administrative costs and reduce choice. What Enron’s employees needed most was sound financial advice not to put all their money on one horse. This is especially true for the retirees, who, it must be noted, were free to sell their Enron stock at any point other than the lockdown period. Michael W. Lynch is Reason’s national correspondent. See article at:[url]http://reason.com/ml/ml122701.shtml[/url] Eric The(FewEggs,ButManyBaskets)Hun[>]:)]
Link Posted: 1/28/2002 4:01:40 PM EDT
Link Posted: 1/28/2002 4:07:49 PM EDT
Link Posted: 1/28/2002 4:12:31 PM EDT
I had breakfast a couple of days ago with a friend whose son lost $1.6 Million plus virtually all severance pay. Sort of brought the whole thing closer. The guy and his wife planned on moving to the country this summer and he planned to only do some consulting work. Now he's looking for a job.
Link Posted: 1/28/2002 4:28:57 PM EDT
Eric- This sounds awfully similar to a conversation I was having with an older lady that I work around just this last week. I work in the semiconductor industry and it seems that every few years my company offers retirement packages to get out some of the older, higher paid employees. We had a package come out about a year and a half ago right after the market began to take a nosedive. Many took advantage and this one woman did not. She has left her 401-K entirely in company stock which has dropped from a high of around $90 into the $20's as of this week. She began asking me a few questions about moving money in the retirement accounts into different investment options, after reading something about Enron. She asked why we couldn't move our money out of company stock and I told her that we could and I moved shares regularly. She was flabbergasted to say the least. She had no idea that she could change her options around with 100% of her money with no more than an automated phone call of less than a minute. While I was explaining to her how it worked another lady came up then another and none of them had any idea how it all worked. They had heard of the other accounts but thought they were all different names for the same thing. They also thought that because the older employees pension fund was changed a few years ago they were stuck with company stock until they retired. Between the three women I talked to they probably had 75 or more years of seniority at this company. They all seemed to think that someone should have told them how to better invest their money when the stock market started dropping. They think that the company should take more charge of their accounts since they don't know anything about them and it caused them to lose a significant amount of money. [b]What?!?!?!?!?[/b] I said, "You want somebody else to manage your retirement account and you don't want to be able to make any decisions whatsoever?" They all replied "Yes". This put the whole Enron ordeal in a different light for me. I'm 25 and I move shares and keep track of my accounts and try to squeeze every penny I can get out of it and keep it safe when I can (though I didn't do a very good job during the crash last year) and here are a bunch of potential retirees that don't even understand how their 401-K shares equate to actual shares of stock! All they understand is if company stock rises so does their retirement account and vice versa if it drops. It's also, not because of a lack of education. The company has had several workshops on how to manage your 401-K since I have started there and these people just choose not to listen. However, after our conversation they realize that their indifference has cost them 100's of thousands. After talking to them I can understand how some people lost everything at Enron.
Link Posted: 1/28/2002 4:45:24 PM EDT
Never, ever, ever leave the greater percentage of your retirement investments in company stock! If the company folds and you're out of a job, it would mean that you get a double-whammy in the loss of your retirement investment, as well! Diversification is the name of the game! Eric The(DogEatDogWorldOutHere)Hun[>]:)]
Link Posted: 1/28/2002 4:53:08 PM EDT
No doubt many Enron employees got greedy and then got burned. I still have serious reservations about the conduct of Enron though. First, the time frame of the lockdown is suspicious. Second Enron lied / hid their true financial condition from investors, including their own employees. You can't really expect investors to make wise decisions when they are getting phony financial statements from the company that have been given the good housekeeping stamp of approval by those lying sons of bitches at Andersen. Come on, a 600 million 'adjustment' on the books is not a minor mistake.....
Link Posted: 1/28/2002 5:13:31 PM EDT
It's just not Enron employees who are getting hurt in the retirement areas- many other companies had invested their retirement funds in Enron, thereby hurting those different employees retirement accounts. Lots and lots of municipal retirement accounts in many different states, especially in the mid-west and south, according to news reports I've heard. Someone with more time willing to dig out those figures?
Link Posted: 1/28/2002 5:22:15 PM EDT
Originally Posted By DScott: It's just not Enron employees who are getting hurt in the retirement areas- many other companies had invested their retirement funds in Enron, thereby hurting those different employees retirement accounts. Lots and lots of municipal retirement accounts in many different states, especially in the mid-west and south, according to news reports I've heard. Someone with more time willing to dig out those figures?
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I actually saw a bunch of the figures the other day and I don't think it really 'hurt' the retirement accounts that much. Most of the figures were pretty large, in the millions, but the total account figures were in the billions making Enron just a small percentage of the total investment. A few funds dropped or at least lessened their investment in Enron before the huge price drop so didn't lose as much as others. If a two or three or even ten percent drop in your account kills you then you shouldn't be invested in the stock market at all.
Link Posted: 1/28/2002 5:28:35 PM EDT
I pity this poor sucker, then... [url]http://money.cnn.com/2001/11/26/401k/q_retire_enron_re/[/url]
Link Posted: 1/28/2002 5:36:13 PM EDT
Originally Posted By Ponyboy: I said, "You want somebody else to manage your retirement account and you don't want to be able to make any decisions whatsoever?" They all replied "Yes".
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You should have said they already do have such a plan. It's called "Social Security".
Link Posted: 1/28/2002 6:03:57 PM EDT
I used to work at a company that did the 401k match in company stock only. At the "employee retirement workshop", employees were encourage to invest their contribution in the company to be "part of the team". The stock took a dive, but I only lost the company match. I am not claiming it was a conspiracy, but all of the forms and options given in the company workshop seemed needlessly complicated. If Enron is anything like my old company, they intentionally made choosing the company option much easier than the other investments. [i]If you want 100% company check this box, if you want anything else fill out these 17 forms in triplicate. Have a nice day![/i]
Link Posted: 1/28/2002 10:38:01 PM EDT
When I heard about the Enron 401(k) stories, I could not believe that so many individuals had bet their whole retirement on a [b]single common stock[/b]. What if the company just had bad management and went out of business? Oh, wait a minute, that's what happened. Having said that, I wonder about Arthur Andersen and what they had to gain by playing along with Enron's financial scams. Any speculations on this one? I think that the accounting scandal is actually more serious than the Enron scandal itself. For better or worse, we demand of accountants a level of integrity just short of Almighty God. For them to join the scam shakes one of the pillars of the financial system.
Link Posted: 1/29/2002 8:29:56 AM EDT
Gee, I can hardly imagine what your legal exposure would have been if you would have knowingly allowed employees to sell their stock (of a soon to be BK Company-Enron) to the general public (aka you and me). Now that would have been a real fiasco. Contrary to assumptions, the signs of greed are recognizable, they were there in the internet bubble, the Long Term Capital Management demise and the S&L meltdown. One of our last protections against these frauds was honest accountants with standards. Capitalism cannot thrive completely unregulated while society remains on the hook. Just common sense.
Link Posted: 1/29/2002 8:44:18 AM EDT
If you find the following understandable you should probably be arrested;) This would be an imaginary conversation with one of the "rocket scientist" finance guys at Enron. They know nothing of business. " I took your quarter and invested it in a long term London atmospheric swap, dated Jan, 2012. You took both sides of the trade and immediately booked the profit to this quarter's 10-Q, applying the counter-party risk to our Jersey operations, the market risk to Abu Dhabi, the currency translation risk to the Caymans and of course, our remaining 400 SPEs covered the rest of the residual risk. You have booked an 800% gain on the transaction and because for the most part this was an off shore transaction, there is of course no income tax implication. Congratulations, you've just booked 200% of this year's bandwidth bonanza from the online pornography trade, though I don't quite understand why so many are intrigued by mere images of flesh when we are being so titillated by the actuality of inventing money in cyberspace in such extraordinary leaps and bounds like the planet has never seen. This is the excitement of pure financial alchemy, the brilliance of it all is so completely wonderful.
Link Posted: 1/29/2002 9:39:17 AM EDT
What I don;t understand is why people kept investing in a stock that, according to the chart I saw on CNN.com, has been trending steadily downward for over a year. Watching th etock price was like looking at a slow-motion train wreck. I think that only when the news reports started to come out, did people finally look at what they were holding and understand the situation. If it turns out that company officials were allowed to trade during the "lock-out" period, or dumped their shares immediately prior to lock-out, then they should be held responsible. If not, then this is just like any other company that has gone out of business due to poor management/auditor fraud. Happens all the time.
Link Posted: 1/29/2002 9:49:15 AM EDT
Originally Posted By DVDTracker: And why am I not surprised to see this today... [rolleyes]
[img]http://us.news2.yimg.com/us.yimg.com/p/nm/20020128/mdf87338.jpg[/img] U.S. civil rights campaigner Reverend Jesse Jackson(R), holds hands with former Enron employees, including Katherine Benedict (L), during a rally at the Mickey Leeland Federal building in downtown Houston, January 28, 2002. About 400 current and former employees of Enron who lost millions of dollars in retirement funds when the energy trading giant collapsed sued January 28, saying they were encouraged to invest in Enron stock without being notified of the company's 'precarious' financial condition. (Richard Carson/Reuters)
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Actually, what I'm surprised about is that Reuters apparently thought that people would get Jesse Jackson confused with a white woman so they made sure they put the little (R) and (L) by their names in the photo caption.
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