Enron's collapse--and the terrible losses suffered
by Enron workers--has
created the political space for a real conversation about how employers have
chosen to finance their employees' retirement. That debate is centered on the
fact that millions of Americans hold 401(k) plans that are overinvested in the
stock of their employer, which puts them at risk of suddenly losing their
Some will say this is the result of workers making free choices. But if you
look at the kind of campaign Enron management ran to get employees to invest in
company stock, you see something that looks more like an exercise in employer
power and boiler-room sales tactics than anything resembling reasoned free
The challenge facing policy makers is how to neutralize employers' campaigns
while preserving workers' abilities to make informed choices about how to invest
their money. At the heart of that dilemma is the fact that it's profoundly in an
employer's interest for employees to load up retirement accounts with company
stock, while it's just as profoundly not in employees' self-interest to do
The labor movement has proposed a package of 401(k) reforms. These begin with
the premise that workers' retirement security should rest on a combination of
Social Security, an employer-provided "defined benefit plan" (a conventional
fixed-pension program), and employee savings accounts such as a 401(k). Employers
who provide their workers only one of the two private components should be much
more carefully regulated. The AFL-CIO has urged Congress to require employers who
don't provide defined-benefit plans to make 401(k) contributions in cash if they
also provide their own stock as an investment option for employees'
Workers must be given expansive rights to sell company stock in their 401(k)
plans--but that's not nearly enough. Congress needs to give workers an equal
voice in the management of 401(k) accounts, restrict what employers can do to
stuff plans with company stock--particularly when a company provides only a
401(k) and no real pension--and make sure that workers have access to investment
ideas from someone whose only interest is in giving good advice.
Union-sponsored Taft-Hartley pension plans provide a model of joint
trusteeship and worker voice. Extending this model to all 401(k) plans through
elections of trustees from among the beneficiaries would be a way of
democratizing workers' capital and addressing conflicts of interest that now
stand in the way of workers' money being managed in workers' interests.
Low-cost independent investment advice is now available in Web-based formats
from several competing firms. While President Bush would like to replace
independent voices with advice from money-management firms that have conflicts of
interest, the labor movement wants to ensure that all 401(k) participants have
access to that independent advice.
It is by no means a given that such reforms will make it into law. Already,
employers are resisting meaningful protections against retirement savings being
overconcentrated in employer stock. The Bush 401(k) proposals were carefully
crafted in consultation with employer groups to allow employers to keep loading
up 401(k) plans with their own stock. And, of course, any measures that give
workers collective control over their retirement savings are likely to
give rise to savage employer opposition.
It's too early now to say what, if anything, will come out of this fight: Only
three months ago the idea that we would even have a pension debate on such
favorable ground was hard to imagine. But the labor movement is committed to a
fight for reforms that would really prevent another Enron, not half measures that
would continue the failed policies that have left so many of that firm's workers
facing retirement with nothing.
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