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The BenefitsLink Newsletter -
Retirement Plans Edition
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February 6, 2002 - 12,556 subscribers
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Witnesses Describe Enron 401(k) Conversion, Blackout Period at Committee Hearing
Excerpt: "Cindy Olson, Enron's executive vice president for human resources, and Mikie Rath, Enron's benefits manager, said they considered moving the blackout period partly out of concerns about Enron's falling stock price. However, attorneys advised them that problems could result if current employees were treated differently from retirees and former workers." (PLANSPONSOR.com; free registration required)

Witness List and Links to Testimony at Enron 401(k) Hearing by Governmental Affairs Committee
'Retirement Insecurity: 401(k) Crisis at Enron,' held Tuesday, February 5, 2002. (U.S. Senate, Governmental Affairs Committee)

Guaranteeing Defined Contribution Pensions: the Option to Buy-Back a Defined Benefit Promise
Working paper available from SSRN.com for $5. Excerpt: "[S]ome states have proposed a guarantee mechanism to help protect DC plan participants. One such guarantee takes the form of an option to buy back the DB benefit. This paper develops a theoretical framework to analyze the option design and how employee characteristics influence the option's cost. We illustrate the potential magnitude of these costs with a buy-back option embedded in a recent reform enacted by the state of Florida ..." (National Bureau of Economic Research)

Controlling the Cost of Minimum Benefit Guarantees in Public Pension Conversions
Working paper available from SSRN.com for $5. Excerpt: "Unfunded defined-benefit (DB) public pension plans throughout the world are being converted to funded defined-contribution (DC) plans that typically contain a minimum benefit guarantee (DC-MB).... The most common technique is to 'over-fund' the benefit: the contribution rate is set high enough so that the expected benefit is much larger than the guaranteed minimum benefit [but this paper shows the technique is] highly ineffective ..." (National Bureau of Economic Research)

Suspicion Aroused by Federal Employee Retirement Accounting Changes in Bush Budget
Excerpt: "Under the proposal, federal agencies would pay the full cost of future benefits under the Civil Service Retirement System and would assume responsibility for the health benefits of all their retirees. Currently, some obligations under CSRS (including annual cost-of-living adjustments) and all of the costs of retiree health benefits are paid from central accounts that are automatically funded by Congress." (Washington Post)

GE Obtains No-Action Letter from SEC on Excluding Pension Enhancement Proposal from Proxy Statement
Excerpt: "Former GE employee William Lynch had proposed last June that GE use its $21 billion pension trust overfunding to create a 'bonus system' that could provide a yearly supplement for pensions.... The proposal will be excluded from the proxy because pension matters are ordinary business operations ... According to a rule under the 1934 Exchange Act, matters relating to ordinary business operations can be excluded from proxy statements, GE said." (Reuters via Yahoo! Finance)

Enron Stock Dive Destroyed Pension Benefits as Well as 401(k) Balances
Excerpt: "But Enron's pension plan had an unusual feature: Benefits from the plan during an eight-year period were reduced or eliminated based on the value of Enron stock that workers received in an Employee Stock Ownership Plan, or ESOP. Though workers were allowed to diversify the stock held in the ESOP over five years, many did not. Now Enron stock is virtually worthless." (USA Today via Yahoo! News)

CalPERS Defends Decision to Keep Quiet on Enron
Excerpt: "'Our response is simply that our fiduciary duty is to our members,' said Pat Macht, a spokeswoman ... 'We met that duty. We looked at that investment. It wasn't for us and we told Enron why.' ... Macht said Calpers' managers had no idea at the time that dubious partnerships would eventually bring Enron down, and said much of the alleged dirty dealing went on after the energy firm had offered the pension fund the partnership." (Reuters via Lycos News)

Enron Executives Say They Debated Freeze on Pension
Excerpt: "'We were concerned in the benefits department about the deterioration of the stock price,' Mikie Rath, a benefits manager at Enron, said in testimony before the Senate Governmental Affairs Committee. But after the debate on the eve of the moratorium, they imposed the so-called blackout period to give themselves time to replace the administrators of the retirement plan." (New York Times; free registration required)

Enron Debacle Causes Some Companies to Increase Fiduciary Insurance
Excerpt: "John Coonan, vice president and worldwide fiduciary liability product manager for the Chubb Corp., says that despite the fact that the vast majority of companies do a good job with employer-sponsored retirement plans, a number of companies are increasing the limits of their insurance.... While interest in and prices for both D&O and fiduciary liability insurance have already started to increase, Coonan says the jury is still out as to the ultimate consequences." (insure.com)

Social Security Pledges May Haunt Both Parties
Excerpt: "Ever since Bill Clinton greeted the new era of surpluses in 1998 with the pledge to 'save Social Security first,' Republicans and Democrats alike have made ever more fervent pledges to use the taxes collected for Social Security solely for retirement benefits or paying down debt.... [T]he president's new budget uses Social Security surpluses to pay for other programs every year through 2013, ultimately diverting more than $1.4 trillion in Social Security funds to other purposes." (New York Times; free registration required)

Testimony of EBRI President for Senate HELP Committee Hearing on Stock in 401(k) Plans (PDF)
35 pages. Prepared for Senate Health, Education, Labor and Pensions committee hearing on February 7, 2002. Excerpt: "EBRI estimates that 2,000 out of the estimated 340,000 401(k) plans include a matching contribution in company stock.... Although the topic of company stock investment in 401(k) plans has recently been the focus of considerable interest, the concept of preferred status for employee ownership has been part of the U.S. tax code for more than 80 years." (Employee Benefit Research Institute)

(Following items are in both editions of the BenefitsLink Newsletter)

Five Common Myths About Stock Options
NCEO executive director Corey Rosen dispels these common misconceptions: 'Most People Getting Options Worked for Dot-Coms'; 'OK, Well at Least They Worked for High-Technology Companies'; 'Most People Give Up Pay to Get Options'; 'Options Are Worthwhile Only If Your Company Is Publicly Traded'; and 'Options Are the Last Decade's Compensation." (National Center for Employee Ownership)

Newly Posted or Renewed Job Openings - Post a Help Wanted Ad
Retirement Service Specialists for Constantin Control Associates
Pension Consultant for Mercer Global Advisors
Retirement Plan Inside Telephone Sales for Metavante 401(k) Services
Asst. Pension Administrator for Small, Pure Pension Administration, 35+ Year Old Firm in Atlanta Area
Defined Benefit Administrator for Metavante 401(k) Services
Benefits Manager for AvalonBay Communities, Inc.
Profit Sharing and 401(k) Administrator - Great opportunity! for Goldberg, Swedelson & Associates

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Copyright 2001 BenefitsLink.com, Inc., but you may freely distribute this email newsletter in whole. This newsletter is edited by David Rhett Baker, J.D.