Employees taking stock of investment risks

BROOMFIELD — Senior Director of Compensation and Benefits Bob Wynkoop heaved a big sigh of relief after Enron Corp. collapsed, taking with it most of the value of Enron workers’ retirement accounts.

Ball had completed the revamp of its own employee retirement benefit program just months earlier, dumping a restrictive employee stock ownership plan (ESOP) that prevented workers from getting out of the Ball shares held in their accounts until age 55.

“When the Enron thing hit I thought, ‘oh my gosh,’ we made a good decision,’ ” Wynkoop said.

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Enron filed for Chapter 11 bankruptcy protection Dec. 2, taking with it any hope that thousands of employees and retirees had of recovering huge losses in their retirement savings plans. By some accounts, as much as 60 percent of workers’ 401(k) assets were in Enron stock, which they were prevented from selling until age 50.

This seemed like an OK arrangement when shares were trading at $90, and executives were promising the stock would soon hit $120. But at 50 cents a share, Enron workers who had tallied impressive retirement savings now say they face old age in poverty.

All investments carry risks. But the fall of Enron employees’ fortunes was so fast and so dramatic that federal lawmakers now are wrangling rules governing the handling of company stock in retirement accounts.

On April 11, the bipartisan Pension Security Act cleared the U.S. House of Representatives on a 255-163 vote. Among other things, this law would allow workers to trade company stock placed in retirement accounts as a “match” after three years. Many companies now require workers to hold that matching stock until retirement.

Though there is much pressure for the U.S. Senate to take up a pension-reform bill, neither the Health, Education, Labor & Pensions Committee nor the powerful Senate Finance Committee seem to be near offering legislation of their own, or considering the House version.

If a pension reform bill never makes it to President Bush’s desk, that’s fine by some businesses leaders who worry that if employees are free to dump big chunks of stock, corporate value could be diluted. Others worry that companies will stop making contributions to workers retirement accounts if they can’t do it in stock.

There is plenty of quibbling about how much stock should be tucked away in retirement accounts for how long, but most experts can agree on one thing: Rank and file workers should not be blocked from selling their company-provided stock at the same time executives are allowed to unload piles of shares at a big profit. “That is preposterous and has to change,´ said Brent Longnecker, executive vice president of Resources Connection Inc., a national employment placement and benefits consulting company with offices in Denver.

The rest of the equation — how much advice companies may offer their employees, how long 401(k) matches made in stock must be held and whether workers have any business investing directly in their companies — still must be worked out.

Independent financial consultant Dan Day, of Daniel M. Day & Associates in Boulder, worries that lawmakers will be too paternalistic in the heat of the Enron moment. He says most employees are smart enough to know when to sell and should be allowed the flexibility to make sure all of their retirement eggs are not in one basket.

Around the water cooler at Ball, where workers now can move money out of company stock the day it hits their accounts, spokesman Scott McCarty says he often hears people talking about reluctantly transferring money from their Ball stock funds into other pools — tough given Ball stock is trading in the $50 range, even after a split earlier this spring.

“If you had asked me two years ago if I thought Ball was ever going to be a $100 stock, I don’t know what I would have said,” he said. “But I would have been laughing first.”

Ball workers can contribute up to 6 percent of their salaries to a 401(k) account; the company matches that at 50 cents on the dollar with stock.

Though there does not appear to be the same irrational exuberance at work at Ball that moved Enron workers to hoard company shares, McCarty said people are listening closely to Chairman and Chief Executive Officer David Hoover. One of Hoover’s key messages is that he wants workers to act like owners and having a little skin in the game doesn’t hurt — if it fits within employees’ investment strategies.

“I think Hoover’s right, but how much skin should you have in that game? For the average employee, it’s not a lot,” Day said. And, he said, a better way to get it is by participating in an employee stock purchase plan.

These programs typically allow workers to purchase company stock at a 10 percent to 15 percent discount. Because the only restrictions on the stock are income tax related, investors are free to sell as they balance and diversify their portfolios. “If you want to have skin in the game, I think that’s better than a company match in the 401(k),” Day said.

It’s easy to get carried away purchasing promising stock — especially if it’s your employer and returns have been high for a couple of years. Day said one of his clients, a woman nearing retirement age, called out of the blue to say she had converted all of her retirement savings into Lucent Technologies stock. “As a financial consultant, there is no way I would ever advocate that,” Day said. “It’s like eating whipped cream all the time. Eventually you get sick.”

When Lucent tanked, the woman’s account dropped to $40,000 from $250,000, and her retirement was pushed out another decade.

Ball has been campaigning heavily to educate its workers, trying to help them balance their 401(k) portfolios. “Especially in light of Enron, we have asked our plan administrator to start educating people on the problem of putting all of your money in one basket,” Wynkoop said. “Of all the changes proposed, education is the most important. If Congress were to put in some more requirements for education, that would be a good thing.”

Nevertheless, McCarty said, a handful of the 82 percent of employees who participate in the retirement program are 100 percent invested in Ball stock.

Longnecker says this is why he expects companies to begin shielding themselves from liability by asking workers who do put all of their retirement eggs in one basket to sign a waiver indicating that they understand they are making a riskier choice than spreading the money over several funds.

“I am still not convinced that America understands the importance of diversification,” he said.