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Thursday, 10 January, 2002, 17:55 GMT
Enron losses prompt pension review
President George W. Bush
President Bush wants to protect workers' rights
President George W Bush has ordered a review of US pension regulations following the collapse of the US energy company, Enron.

Some 20,000 employees at Enron lost billions of dollars in their pensions plans, after they were barred by the company from selling Enron shares.

In light of the most recent bankruptcy, Enron, there needs to be a full review of disclosure rules to make sure that... the American stockholder is protected

President Bush
Staff saw their retirement investments erased because their pension schemes were invested in Enron's own stock, which has collapsed from over $85 to under $1 in under a year.

"In light of the most recent bankruptcy, Enron, there needs to be a full review of disclosure rules to make sure that... the American stockholder, or any stockholder, is protected," President Bush said.

The US Justice Department has already launched a criminal investigation in the bankruptcy of Enron.

Politically charged

Some observers have interpreted the President's actions as an attempt to counter criticism of his association with the chairman and chief executive of Enron, Kenneth L. Lay.

Kenneth Lay, Enron chairman and chief executive
Mr Lay is a political ally of President Bush
Mr Lay is a political ally of President Bush, and last year met with Vice President Dick Cheney several times over the administration's energy plan.

However, President Bush was keen to point to "a wave of bankruptcies" that had wiped out employee pension investments.

He added that he found it "deeply troubling" that so many workers had lost their pensions.

Enron pension fiasco

In addition to the criminal investigation, Treasury Secretary Paul O'Neill will now oversee the review of pension laws to investigate whether they should be changed to protect workers.

In a DC plan, if all of it is invested in company stock, yes you're in danger of losing all your money

Craig Copeland
The review will cover company pensions, including 401(k) plans used by most US employees to save for retirement.

The 401(k) plans, also known as defined contribution (DC) schemes, allow employees to make their own investment decisions.

Enron workers found themselves over-exposed to Enron stock because the company matched employee contributions to pension plans with Enron stock.

In addition, employees also chose to invest their own pension money in Enron stock.

Advice debate

The over-exposure to Enron stock raises questions about whether employees should be warned about investing all their money in just one stock.

"In a DC plan, if all of it is invested in company stock, yes you're in danger of losing all your money," said Craig Copeland, a senior research associate at the US pensions research group, Employee Benefit Research Institute.

But, usually, plan sponsors - or the companies - are not allowed to advise employees on how they invest.

According to the EBRI, about 0.5% of pension plans in the US match monetary contributions from employees with company stock.

These are normally large companies where the stock is widely available.

Stories of Microsoft employees that became millionaires by investing early in Microsoft stock may have inspired Enron workers to do the same.

Analyse this

The President said the review would "analyse pension rules and regulations to look into the effects of the current law on hard-working Americans".

If Enron is not found guilty of breaking any pension laws, the review will seek to iron out possible legal loopholes.

President Bush added the review would "come up with recommendations as to how to reform the system to make sure that people [were] not exposed to losing their life savings as a result of a bankruptcy, for example."

The issue of bankrupt companies and their pension funds has been widely discussed.

The House of Representatives has also proposed limits for the amount of money employees can invest in a single company stock, said Mr Copeland.

President Bush's announcement of a review "gives more legitimacy to the whole movement or discussion," he added.

The BBC's Nils Bythe
"The collapse was astonishingly swift"
Mike France, Business Week
"The focus will be on undisclosed conflict of interest"
The BBC's Rob Watson
"Bush said he was deeply concerned"
See also:

10 Jan 02 | Business
Enron documents 'disposed of'
10 Jan 02 | Business
Criminal inquiry into Enron collapse
10 Jan 02 | Business
Q&A: Enron's plight
12 Dec 01 | Business
Enron to start $6bn sell-off
10 Jan 02 | Americas
White House plays down Enron links
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