State Street Seeks Enron Plan Administration Payment

August 15, 2003 (PLANSPONSOR.com) - State Street, the firm brought on to manage Enron's retirement plans after its collapse, is asking a US bankruptcy judge for $4 million in compensation.

>The latest action revisits US Bankruptcy Judge Arthur Gonzalez’s decision in March that determined current employees of the embattled company must ante up State Street’s fee for overseeing their retirement plans.   Currently, the average cost per employee is $320 per year according to Enron, and each worker’s share would increase as the company shrinks, according to a Houston Chronicle report.

>Enron’s creditors, who are in a mad dash to recoup something out of the Enron fiasco, wanted the fees paid by employees, not the company. Gonzalez sided with creditors, noting employees’ disappointment and frustration at the financial burden didn’t “demonstrate a basis for the exercise of sound business judgment.”

>When Boston-based State Street took over the plan, approximately 60% of the plan’s assets were invested in Enron stock.   Overall, more than $1 billion was lost by the 20,000 plan members as Enron’s stock crashed. State Street revealed in the court filing that it sold the plans’ stake in Enron stock for $1.7 million.

“State Street’s request for administrative expenses is buttressed by considerations of fundamental fairness,” said State Street’s request.

>Payment of the $1.5 million in annual fees could come out of Enron’s administrative funds, or the judge could order payment to be made from funds in the retirement plans. The request is the latest attempt in a battle that began with a US Department of Labor (DoL) investigation into the retirement plans in late 2001. The labor department considered suing Enron at that time for mismanagement of the employee retirement savings plans but came to an agreement that the issue could be resolved if Enron hired State Street and paid its fees.

>However, at a hearing in April 2002,   the embattled company balked at what it called taxation by the fees, and Gonzalez ruled in Enron’s favor, shifting the State Street administration cost burden to the retirement plans.   Later the company met with angry DoL officials, and then attempted to about-face and pay for the fees.   Gonzalez denied the request earlier this year, although he left the door open to State Street to apply to the court for payment of the fees.

That prompted the labor department to then sue Enron and its former managers and directors in June for failing to properly oversee the plans (See  DOL Comes Out Guns Blazing in Enron Suit ).   In that lawsuit, the DoL alleges that the defendants violated the ERISA when they failed to consider the prudence of Enron stock as an appropriate investment for the retirement plans and did nothing to protect the workers and retirees from extensive losses.  The suit, filed in federal district court in Houston, seeks a court order requiring the defendants to restore to the plans all losses with interest, forfeit their right to benefits from the plans and permanently bar them from serving as fiduciaries to any plan governed by ERISA.

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