U.S. President George W. Bush has proposed reforms to the country's pension plan. The reforms are designed to prevent companies like Enron from declaring "blackouts" that bar workers from selling company stock held in retirement plans. They follow a public outcry over the fact that, as Enron was going bankrupt last year, workers lost thousands of dollars in retirement savings due to such blackouts while company executives were able to sell their shares and preserve their money. RFE/RL correspondent Mark Baker looks at the reforms and the fallout to date -- for the White House, Enron employees, and the general public -- from America's biggest corporate bankruptcy ever.
Prague, 5 February 2002 (RFE/RL) -- The administration of U.S. President George W. Bush is proposing reforms to the way many American workers maintain their pension funds.
The changes follow the collapse of the Enron Corporation, which not only cost thousands of Enron workers their jobs but also wiped out many employees' retirement savings.
The failure of Enron, once the country's seventh-largest company, is the biggest corporate bankruptcy in U.S. history. Its failure has touched millions, from ordinary shareholders and employees all the way to those who work in the White House.
Bush announced the reforms over the weekend at a Republican Party meeting in West Virginia. He called for a change in the country's corporate culture to one of more honesty and openness.
"If you're corporate America, you're responsible for making sure that you reveal all of your assets and liabilities to your shareholders and to your employees."
Bush also called for prohibiting company executives from selling stock during "blackout" periods like the one that kept Enron's workers from selling their shares while the firm's stock plunged in value last year. Bush said his reforms would create the same conditions for workers as for company executives.
"If it's OK for the sailor, it ought to be OK for the captain."
Many observers see the administration's reform plan as an attempt by Bush to deflect criticism away from his political ties to Enron. Enron is based in Bush's home state of Texas, where he previously served as governor. Bush received more than $600,000 in campaign contributions from Enron in the past eight years.
Enron officials also met on numerous occasions with top administration officials, including Vice President Dick Cheney, to discuss changes to the administration's energy policy.
The investigative arm of Congress, the General Accounting Office, has said it intends to sue the White House for transcripts of conversations between Cheney and Enron executives. The White House, in turn, has said the conversations are not part of the public domain and are protected by executive privilege.
The proposed U.S. pension reform is intended to redress some of the problems associated with so-called "401(k)" retirement accounts.
A 401(k) is essentially a private account held in a worker's name into which he or she pays a certain amount of money each month. That money is typically matched by the employer in the form of cash or other benefits, such as stock. Workers are prohibited from withdrawing their 401(k) money until they reach retirement age, but they are permitted to decide, with some restrictions, how the money is invested.
More than 40 million U.S. workers maintain 401(k) accounts, with a total of $2 trillion in assets. Such 401(k) accounts are seen as important supplements to the U.S. national pension plan, Social Security.
The problem for Enron employees was that many of them were forced to maintain their retirement savings in the form of company stock through matching 401(k) contributions, and prohibited from selling these shares when the stock began to lose value. Enron shares lost more than 90 percent of their value last year when financial concerns about the company triggered a major sell-off on Wall Street.
The same prohibitions on selling stock did not apply to upper management. While ordinary workers saw their life savings reduced to nothing, company executives sold shares steadily through the downturn and preserved much of their wealth.
For company workers, the result was a disaster.
Charles Prestwood is a retired Enron employee who held a large portion of his 401(k) plan in Enron stock. He says he lost more than a $1 million when the value of the stock began falling and he was prohibited from selling.
"I lost $1.3 million. It just completely turned my world upside down and turned my life a complete 180 degrees. And then last week, I read in the paper under the bankruptcy deal we may even lose our little pension that we're getting. There's no way I can make it if I lose that."
Karen Friedman of the U.S.-based Pension Rights Center says that Enron did not technically violate the law by requiring workers to hold the employer-contributed portion of their 401(k) accounts in the form of company stock. She says many other companies do the same thing.
"A lot of 401(k) plans require that people keep -- not the employee part, but the employer [contribution] -- [the] money in [the form of] employer stock until [the worker] reaches early retirement age, which is sometimes 50 or 55 under the plan. So, that means if there is a major downturn and people want to sell that stock, they are prohibited from doing so."
Enron also probably acted within the law when it prohibited employees from selling shares when it did -- even if the timing was poor.
For Friedman, the Enron disaster represents an opportunity to begin a national dialogue on pension reform. She says that 401(k) plans offer the benefits of flexibility and choice that are not available through Social Security or traditional company-administered pension plans.
But she says 401(k) plans present risks that are not well understood by the general public: "The fact is that these [401(k) plans] are uninsured plans, so if there is a downturn in the market, or other fraud or abuse, people can lose all their money. So what we're trying to do is at least to put some protections into the law to ensure that peoples' money is safe."
This is particularly important as Americans hold more and more of their wealth -- including their pension benefits -- in the form of high-risk stocks and bonds.
Meanwhile, several congressional committees -- as well as the U.S. Justice and Labor departments and the Securities and Exchange Commission -- are continuing their investigations into whether Enron misled employees, shareholders, and the general public about its financial health. The committees will also examine whether the company's auditor, the Arthur Andersen firm, acted improperly by approving Enron's accounts just weeks before the collapse.
Enron's former chief executive officer, Kenneth Lay, had been expected to testify at hearings this week, but he declined to take part at the last minute. Committee members are now considering ways to compel Lay to testify.
Arthur Andersen is expected to come under heavy scrutiny for either missing or intentionally ignoring many of the hundreds of partnerships that Enron had formed and to which it was able to transfer billions of dollars of debt. Enron collapsed last fall when it was unable to meet payments on some of this debt. The partnerships and debts were kept off Enron's main accounts and therefore out of the public eye.
It's not yet clear which, if any, laws Enron or Arthur Andersen may have violated. But over the weekend, the dean of the University of Texas Law School and an Enron board member published the first of what will likely be a stream of reports on the company's behavior. The report by William Powers was highly critical of Enron executives, implying that laws were broken. "We found a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition."
The Enron case is so complicated that former employees like Charles Prestwood do not even know where to assign blame. "We were being misled everywhere we turned. Number one: Our company was misleading us. Arthur Andersen was misleading us by okaying the books. The stock market was misleading us because we were trusting them and what they print to be the truth. It's very disheartening to us old-timers."
Enron is now in the process of selling off its assets, and the proceeds will be used to pay off creditors. The company's interim chief executive officer, Steve Cooper, says he believes Enron will survive, albeit as a much smaller company. But such optimism is unlikely to give Prestwood and other former employees reason to cheer.
Under U.S. bankruptcy law, shareholders are traditionally the last in line to receive the proceeds from any liquidation. And when it gets to Prestwood, there's not likely to be much left.
(RFE/RL's Andrew F. Tully contributed to this report.)