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 retirement savings.
Some will say this is the result of workers making free choices. But if youlook at the kind of campaign Enron management ran to get employees to invest incompany stock, you see something that looks more like an exercise in employerpower and boiler-room sales tactics than anything resembling reasoned freechoice.
The challenge facing policy makers is how to neutralize employers' campaignswhile preserving workers' abilities to make informed choices about how to investtheir 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 companystock, while it's just as profoundly not in employees' self-interest to do so.
The labor movement has proposed a package of 401(k) reforms. These begin withthe premise that workers' retirement security should rest on a combination ofSocial Security, an employer-provided "defined benefit plan" (a conventionalfixed-pension program), and employee savings accounts such as a 401(k). Employerswho provide their workers only one of the two private components should be muchmore carefully regulated. The AFL-CIO has urged Congress to require employers whodon't provide defined-benefit plans to make 401(k) contributions in cash if theyalso provide their own stock as an investment option for employees'contributions.
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 equalvoice in the management of 401(k) accounts, restrict what employers can do tostuff plans with company stock--particularly when a company provides only a401(k) and no real pension--and make sure that workers have access to investmentideas from someone whose only interest is in giving good advice.
Union-sponsored Taft-Hartley pension plans provide a model of jointtrusteeship and worker voice. Extending this model to all 401(k) plans throughelections of trustees from among the beneficiaries would be a way ofdemocratizing workers' capital and addressing conflicts of interest that nowstand in the way of workers' money being managed in workers' interests.
Low-cost independent investment advice is now available in Web-based formatsfrom several competing firms. While President Bush would like to replaceindependent voices with advice from money-management firms that have conflicts ofinterest, the labor movement wants to ensure that all 401(k) participants haveaccess 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 beingoverconcentrated in employer stock. The Bush 401(k) proposals were carefullycrafted in consultation with employer groups to allow employers to keep loadingup 401(k) plans with their own stock. And, of course, any measures that giveworkers 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: Onlythree months ago the idea that we would even have a pension debate on suchfavorable ground was hard to imagine. But the labor movement is committed to afight for reforms that would really prevent another Enron, not half measures thatwould continue the failed policies that have left so many of that firm's workersfacing retirement with nothing.
