Just as companies get ready to overhaul their 401(k) plans in the wake of the 2001 tax-cut legislation, further changes may soon be in order. At least eight different legislative proposals are ready for debate–all aimed at giving employees greater control over their 401(k) plan assets. Also roiling the water are several potentially precedent-setting lawsuits that have been filed against Enron Corp. and other plan sponsors for mishandling company stock investments in these plans. The bottom line: executives will be pressured to review company policies regarding retirement savings programs, to increase and enhance investment diversification, and to monitor blackout periods during a change in plan record-keepers.
The losses suffered by Enron employees who invested a large part of their 401(k) plan benefits in Enron stock may be a touchstone for change, “but aspects of the Enron case are atypical,” cautions benefits attorney Jan Steinhour of Denver-based Rothgerber Johnson & Lyons LLP. Nevertheless, “the Enron crisis provides a lablike setting for dissecting 401(k) plan operations to learn whether the existing rules require reform,” adds Steinhour.
In addition to provisions that cap investments in company stock and allow participants to diversify out of company stock more quickly, bill proposals are trained on fiduciary responsibility. A fiduciary, in this case, is anyone with discretionary control over plan investment or man-agement, including the employer or a third party hired by the employer.
Ideas range from lifting safe-harbor rules for fiduciaries during blackout periods (when employees lose control of assets) to making it illegal for fiduciaries to knowingly misrepresent information relating to the present or expected value of company stock. There’s even a proposed tax for corporate insiders who sell or exchange company stock when lower-level employees cannot.
A few companies have beaten lawmakers to the punch. Gannett Co. amended its plan in February, calling plan restrictions “outmoded.” Now, for example, employees at the media giant have the immediate right to diversify all plan investments, including Gannett common stock they receive through a company match program. (Previously, they had to wait until at least age 55.) ChevronTexaco Corp. and International Paper put similar changes into effect on April 1. Both companies say the amendments were part of merger-integration efforts started before Enron’s fall.