With the collapse of giant energy trader Enron Corp. grabbing headlines, expect new skepticism and tough questions from employees about the makeup of your company's own retirement plan.
Hundreds of current and former Enron employees filed a class-action lawsuit in late January seeking damages for losses they suffered by investing in the company's 401(k) plan. The complaint alleges that the company continued to encourage workers to invest in company shares, even after senior execs knew of the firm's financial plight.
Consequences: Count on workers to invest less in their company's own stock and to pressure their employers to add more diversified investments.
Also, more companies are expected to boost their fiduciary liability insurance in the wake of the debacle, which may spur 10 percent to 20 percent hikes in premiums for this type of coverage.
Traditionally, corporations buy insurance to cover an amount equal to about 10 percent of 401(k) plan assets. Now, many companies may increase coverage to as high as 20 percent of assets, says The Hartford, one of the nation's biggest insurers. The good news: The number of employers at risk for these types of lawsuits is limited. Only about 2,000 of the nation's 340,000 401(k) plans match employee contributions with company stock.
Legislative reaction. Congress also is stepping in. Several pending bills aim to cap the percentage of company stock allowed in 401(k) accounts. Don't expect this to fly. The Bush administration still thinks workers should have the right to decide how to invest their own money.
Instead, the administration is pushing a series of pension safeguards to increase investment flexibility. On the wish list, which would need congressional approval: Top execs would be prohibited from selling company stock during blackout periods; employees would be able to sell company stock after three years; and employers would be encouraged to make outside financial advice available to employees.
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