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Securing Pensions II: some necessary reforms. (Enron Capitalism And How To Fix It).

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 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 choice.

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 so.

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' 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 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.

DAMON SILVERS is associate general counsel of the AFL-CIO.
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Author:Silvers, Damon
Publication:The American Prospect
Article Type:Brief Article
Geographic Code:1USA
Date:Mar 25, 2002
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