Chairman John Boehner (R-Ohio) opened things up by noting that whether or not Enron workers were victims of financial malfeasance, ‘Enron workers are victims of an outdated law.’
But for most of the hearing the actions of Enron’s administrative committee and its members appeared to be on trial – with comparisons drawn to Oliver North (‘he didn’t remember anything, either’), bombs under car seats and a need to ‘legislate irresponsibility’ in communications that referred to the Enron company match as ‘free money.’
Representative George Miller (D-California) expressed his ‘concerns that people on the administrative committees were doing things differently with their own portfolios than they were – or were talking about doing – with the 401k assets.’
Thursday’s hearings included testimony from Enron
benefit managers Cindy Olson and Mikie Rath. The committee
also heard fromTom Padgett, 59. He worked for Enron or
predecessor companies for some 30 years, and continues to
be employed by the former energy-trading giant.
Much of the questioning was directed at Olson, Enron’s Executive Vice President for Human Resources. She said she reported to ex-CEO Kenneth Lay and the firm’s COO during the period in question. According to her testimony, Corporate Development Director Sherron Watkins approached Olson in mid-August with the now-famous memo that warned of a pending implosion of the firm based on accounting irregularities. Olson said she directed Watkins to bring up the issues with CEO Lay – and, in fact, set up a meeting between Watkins and Lay.
Democratic Committee members seemed particularly incensed that Olson did not see fit to bring the existence of that memo up with members of the Enron Administrative Committee, in view of the potential impact on the values of the stock held in the plan.
Olson said that the contents of the memo were, at the time she received it, unsubstantiated. She also said that she was in no position to evaluate the reality of the concerns expressed – and said that Watkins herself didn’t know if it was true at the time.
Committee members contrasted her action with that of someone who had been given a note that a bomb was under the front seat of their car and yet did nothing to check it out.
Committee members also challenged Olson’s attendance at the administrative committee meetings, her exercise of stock options and the fact that her 401(k) account didn’t appear to suffer as deeply as other workers. It lost only about half its value. Olson testified that she moved money from Enron stock to a stable value option in the plan after her financial advisor told her she was ‘too emotionally involved’ with Enron’ stock.
As had been testified to earlier in the week (see A Change in Plans: The Enron Conversion ), Rath noted that Enron had considered postponing the plan conversion, but was concerned about communicating to 20,000 workers in a timely fashion. Ultimately, the company found that it would take longer to unwind the transition than to complete it – and managed to shave a week off the planned conversion blackout period.
Rath noted that the decision to convert to Hewitt was primarily based on deteriorating service levels as Northern Trust, and an apparent inability to deliver the services expected by Enron. However, she also noted that Enron saved $700,000 in making the move of its $2 billion plan.
Enron previously had a traditional defined benefit plan, but that was converted to a cash balance plan in 1996 to better fit the needs of their changing workforce, according to Rath. In response to questioning from Representative Boehner, Rath noted that while there was a company match in one of Enron’s participating companies prior to 1997, the ‘real’ match in company stock only began in 1998. And that while about 60% of the total plan assets was in Enron stock, Rath estimated that only about a third of that came from company contributions.
The Committee also heard from Tom Padgette, who had worked for Enron, or successor employers for some 30 years. Now 59, Padgette claimed that matches made in Enron stock by his employer and statements from Enron executives that the stock would go to $120/share encouraged him to invest heavily in that option.
Responding to stories questioning why workers such as he had not diversified, Padgette noted that they were ‘loyal’ Enron employees, ‘proud to be owners of a growing company.’ However, he said that ‘good investment decisions require honest information, and we all now know that did not happen.’
Padgette stated that he got information about the lockdown 10 days prior to the event, though he admitted that he didn’t know when the lockdown actually began. Padgette still works for Enron, and continues to contribute to the 401(k) plan though no longer in Enron stock. He said that he lost a little over $600,000 in the 401(k) plan.