Human Capital & Careers

Did Enron 401(k) Freeze Burn Employees?

Labor Department opens probe into company's handling of retrirement benefits.
Stephen TaubDecember 6, 2001

Now, the spotlight on Enron is being shined on the company’s retirement benefits.

The Labor Department has opened an investigation into questions raised by Enron’s handling of its workers’ retirement benefit plans, according to U.S. Labor Secretary Elaine Chao. Chao also announced that the Department has teamed up with the Texas Workforce Commission to help workers who are being laid off in the wake of Enron’s bankruptcy. “Enron’s employees have gotten the short end of the stick in the sudden collapse of this company, and we are committed to doing everything we can to help them,” Chao said in a statement.

In the past few days, Enron has filed for Chapter 11 bankruptcy and laid off 4,000 employees. It also put another 3,500 on temporary leave.

Responding to these sudden layoffs, the Labor Department and the Texas Workforce Commission have set up rapid response teams to provide orientation sessions for the affected workers, informing them how to sign up for unemployment insurance benefits and receive free job training and other services.

The Labor Department also acknowledged that many Enron employees lost 70 percent to 90 percent of their retirement assets after the company indicated that it would re- state profit reports. “The Labor Department’s Pension and Welfare Benefits Administration is reviewing Enron’s benefits plans, the rules that govern them, and steps that were taken by the company shortly before its collapse to temporarily freeze trading of 401 (k) plan assets,” it said in its press release. “This action is being closely coordinated with other government agencies investigating Enron.”

Meanwhile, Enron employees have filed a $1 billion lawsuit against Big Five accounting firm Andersen, according to The Times of London.

The lawsuit seeks compensation for losses suffered by members of Enron’s retirement plan, plus the return of Andersen’s $1 million-per-week fees, according to the paper.

The lawsuit alleges Andersen “knowingly participated in Enron’s breaches of fiduciary duty” by helping the firm hide its debts, says the paper.

And in yet another lawsuit, Amalgamated Bank, which manages worker retirement funds, sought to freeze the bank accounts of 29 senior executives at Enron Corp., alleging they reaped huge profits by artificially inflating the company’s stock price.

Among those named were Chairman and Chief Executive Kenneth Lay, former chief financial officer Andrew Fastow, board member Wendy Gramm (a former chairman of the Commodity Futures Trading Commission and wife of Texas Republican Sen. Phil Gramm), and the company’s auditor, Arthur Andersen LP.

In a lawsuit filed in U.S. District Court in Houston, the bank called Enron a “grotesque fraud,” and said insiders gained about $1.1 billion from the sale of more than 17.3 million shares of stock over the past three years.

“Based on our own ongoing investigation, we believe the chicanery and financial manipulations at Enron were far more widespread than the company has admitted,” said Bill Lerach, lead attorney for the case at law firm Milberg Weiss Bershad Hynes & Lerach LLP, at a press conference. “This appears to be one of the worst instances of illegal insider trading we’ve ever encountered.” Milberg Weiss is representing Amalgamated.

The lawsuit said Lou Pai, chairman and chief executive of Enron unit Enron Accelerator, allegedly gained the most from insider trading of Enron shares, reaping $353.7 million. Lay allegedly gained $101.3 million, the second-highest.

And Thursday’s New York Times reports that only a few days before Enron filed for bankruptcy and laid off thousands of people, the company paid $55 million in bonuses to about 500 employees.