A Change in Plans: The Enron Conversion

February 6, 2002 (PLANSPONSOR.com) - Enron executives considered delaying the conversion of their 401(k) plan, but were concerned about the communication of the timing change and decided to proceed with their original plan.

Those insights came from Tuesday’s testimony by employee benefits managers at Enron, as well as recordkeepers Hewitt and Northern Trust Retirement Consulting, before the Senate Government Affairs Committee.  

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.

Notification Dilemma

Rath noted the company was concerned that it would not be able to notify retirees and former workers on a timely basis of a decision to delay the blackout – concerns exacerbated by the then-prevalent concerns about mail service and anthrax contamination.  Those discussions took place in late October – a time when Rath said no one knew the extent of the problems at Enron.  According to Rath, ‘If someone said Enron was going to file for bankruptcy I wouldn’t have believed them.’

Enron filed for bankruptcy on December 2, 2001.

The Beginnings

According to testimony from Catheryn Graham, an Engagement Manager with Hewitt Associates, Enron selected it as a successor recordkeeper to Northern Trust Retirement Consulting in May 2001.  Hewitt and Enron signed a letter of intent in June 2001, and in July the proposed ‘live’ date for processing on Hewitt’s platform was October 23, 2001.

At that time the Enron Benefits Department, following consultations with the service providers, established a blackout period that would begin on September 14, 2001 and end on the live date of October 23, 2001.  However, the conversion anticipated two levels of blackout.  While no withdrawals (including loans) were permitted throughout the entire period, participant transfers were only restricted during the period from September 26, 2001 through October 23, 2001.  At least that was the plan.
Change in Plans

According to Graham, in mid-August Enron communicated their desire to implement several plan changes – which necessitated reworking the original schedule – and moving the ‘live’ date to November 20 – and the blackout period for fund transfers to run from the close of trading on October 26, 2001 through November 19, 2001.   Hewitt drafted a communication to participants that was modified by Enron and mailed on October 4, based on address lists provided by Enron and NTRC. 

On October 25, 2001, Enron contacted Hewitt – and asked about the consequences of accelerating the live date by shortening the blackout period.  That same day Enron contacted Northern Trust and asked about extending the conversion date to January 1, according to Joseph P. Szathmary, an associate at Northern Trust Retirement Consulting, LLC.  Ultimately, Enron decided to go forward with the conversion date as planned.

Szathmary said that the first business day on which Enron participants could not transfer balances was October 29, 2001.

On November 1, 2001, a meeting of the Enron Administrative Committee included Hewitt representatives to discuss the feasibility of shortening the blackout period by accelerating the live date to November 13, 2001.  At that same meeting Hewitt testified that the Committee asked if it were possible to halt the conversion and leave the records where they were until some later date.  However, by that time assets had already been transferred from Northern Trust to Wilmington Trust, the successor trustee – and ultimately the Committee advised Hewitt to proceed toward an accelerated live date.   

Hewitt said it received the data transfer from NTRC on November 7, 2001 and, four business days later, Hewitt met the accelerated live date of November 13, 2001 .

On November 8, 2001, at Enron’s request a postcard was mailed by Hewitt to participants indicating that an effort was underway to shorten the blackout period and urging them to monitor the Enron web site for news as to live dates and other pertinent information.  Hewitt said the Enron 401(k) Plan went “live”, with Hewitt as record keeper, on November 13, 2001.

During the blackout period when workers were actually unable to transfer their balances, Enron’s stock price went from $15.40 to $9.98.  It had traded above $80/share in January 2001.