Party Lines Parse Pension Protection Proposals

February 8, 2002 ( - Enron-related pension hearings in the Senate took on a familiar caste Thursday: Should employees have the freedom to make their own mistakes, or is retirement security too important to leave in the hands of investment amateurs and conflicted employers?

Party lines were much in evidence in Thursday’s hearings at the Senate Health, Education, Labor and Pensions Committee.

As she did earlier in the week, Labor Secretary Elaine Chao defended the Bush administration’s proposal (see Chao Testifies at Enron Hearing).

Chao and Republicans on the Committee continued to maintain that the proposal would protect workers (see Communications, Choice Focus of Bush’s Pension Plan), while at the same time providing an incentive to employers to continue contributing to the programs. 

Diversification Debate

The most controversial provision in Thursday’s discussions was the three-year diversification restriction on employer stock in the Bush proposal (see The President’s Proposal:  What It Could Mean for Plan Sponsors).

Committee Democrats, led by Chairman Edward Kennedy (D-Massachusetts.), said Section 401(k) plans need to be tightened to prevent employers from limiting their contributions to their own stock and to encourage employees to diversify their assets as a means of minimizing risk, according to the Bureau of National Affairs (BNA). 

“The President’s proposal does nothing to respond to the core issue: the need for investment diversification to protect workers at Enron and other companies across the United States,” Kennedy said. “Outside of the fact of the sale or the lock-ins and some notification, I don’t see how [the administration] can give any assurance to any Enron workers, certainly anyone from Polaroid in my own state, or from Lucent technologies, that they wouldn’t have lost their retirement as well if they’d stayed in those companies,” he added, according to the BNA report.

Tax Payer Impact  

Thursday’s testimony included presentations from Senators Barbara Boxer (D-California) and Jon Corzine (D-New Jersey), as well as former Enron – and Polaroid – employees. 

Senators Boxer and Corzine put forth a proposal last December that would impose limits on the amount of company stock in all retirement plans (see Congress Proposes Limits on Employer Stock, Blackouts ).

Harkening back to sentiments expressed in testimony offered in the House Committee on Education and the Workforce earlier in the day (see Prof Calls for Transparency in House Hearing), Corzine said the tax benefits for Section 401(k) plans subsidized by taxpayers to the tune of $60 billion to $100 billion annually should not extend to ‘risky’ investment strategies, which he said is what a Section 401(k) plan without a cap amounts to.

Additionally, he cited the burden that would be imposed on taxpayers to support employees who rely on public assistance because their retirement plans suffer, according the BNA report.

Corzine challenged the notion that employers would cut back on their contributions to these programs. 

Instead he maintained that competitive pressures and the need to satisfy nondiscrimination rules would continue to encourage employer contributions, even with additional controls imposed on employer stock investment.

Participation Pause?

Taking another perspective, Committee ranking Republican Judd Gregg (R-New Hampshire) said one of the fundamental principles of investment is allowing investors to make their own decisions – and cautioned against setting up a system that ‘dramatically kills [employers’] participation.”

As did Republican House members yesterday, Gregg cited many positive gains in retirement programs with returns significantly buoyed by an investment in employer stock.

For her part, Boxer said the Enron bankruptcy proved that Congress should have passed the bill she proposed in 1996 and 1997 to cap company stock holdings in Section 401(k) plans. 

That provision was ultimately diluted into a much narrower restriction that prohibits employers from forcing employees to invest more than 10% of the employee contributions in stock.