Companies, moving ahead of Congress, revise 401(k) plans

Posted 7:59AM on Friday 12th April 2002 ( 23 years ago )

NEW YORK - Some companies have moved a step ahead of Congress by making changes to their retirement savings plans, even as Enron-wary lawmakers approved new -- but limited -- protections for workers and their 401(k) accounts. Employers including AOL Time Warner Inc., Computer Network Technology Corp. and The Gillette Co. have recently changed the rules for their 401(k) plans, allowing workers either to sell company stock at will or capping the percentage of assets held in those shares. "The catalyst for doing it at the time we did it was what happened at Enron," said Greg Barnum, the chief financial officer for Minneapolis-based CNT, which is limiting savings employees can hold in its own stock. "I just think it's really risky, especially in high-tech companies, to put all your eggs in one basket." At Enron, many employees' retirement accounts were loaded with large amounts of company stock. Their savings vanished when the share price tanked. In America, about 42 million employees hold 401(k) accounts, with $2 trillion in assets. The House of Representatives approved a bill Thursday that would encourage but not require such changes. The bill, largely based on President Bush's pension reform plan and passed on a 255-163 vote, would let companies decide whether workers can sell employer-matched stock in their 401(k) accounts after three years of service. Many companies now require workers to hold such stock until they reach age 50. The measure would also let retirement fund managers advise workers on investment options and require employees be notified before plans are changed. In addition, it would bar executives from selling their company stock during blackout periods when rank-and-file workers are not allowed to touch their 401(k) accounts. The bill won backing from Republicans, who control the House. But many Democrats charged the measure doesn't go far enough to ensure workers diversify their retirement portfolios, or to protect them from conflicting investment advice. Some lawmakers and employer groups say, though, that limiting company stock in 401(k) accounts might lead companies to cut back on their contributions to worker retirement plans. The Senate has not yet acted on retirement savings legislation. At AOL Time Warner and Gillette, employee contributions will continue to be matched with company stock, although workers will now be allowed to sell those shares at any time and to move that money into other 401(k) investment options. The changes took effect April 1. Both companies are maintaining their matching levels, but say the change will give employees more investment choices and allow them to diversify their retirement savings. "The real goal was to allow employees to have the maximum amount of flexibility in controlling their retirement planning so, of course, as part of it, you want to make sure they can direct where the company match goes," said Tricia Primrose, a spokeswoman for New York-based AOL Time Warner. AOL estimates that about 40 percent of all the assets in its 401(k) are in company stock. The Boston-based Gillette puts the figure at 47 percent, nearly all of it the result of employee investment decisions rather than the company match. Both employers previously required workers to wait until age 50 to sell shares contributed by the company. CNT, a Minneapolis-based maker of equipment used for backup data storage, is taking a different approach. In a move also effective this month, it is limiting the amount of company stock individual employees hold in their 401(k) accounts to 20 percent of all assets. Employees who hold more than that percentage currently will not be forced to sell off their shares. But they and other workers who reach the cap will be prevented from adding more shares of CNT stock, Barnum said. CNT makes its matching contribution in cash and will continue to do so. Only about 60 or 70 of the company's 790 workers have more than 20 percent of their retirement savings accounts in company stock, he said. The measures taken by all three companies follow steep plunges in the price of their stock in the past three years. Gillette, which reached the mid-50s in 1999, dropped to the mid-20s last year. It has since rebounded and closed Thursday at $35.38. AOL Time Warner shares topped $90 in late 1999, but have since fallen sharply. Thursday's close was $19.60 a share. CNT's shares reached $40 in late 2000, but fell below $10 last year. Thursday's closing price was $11.31 a share. The companies' decisions to revise their 401(k) rules contradict speculation that the Enron scandal might blow over without resulting in any substantial change, said Douglas Kruse, a Rutgers University economist who has testified before a House subcommittee on employee stock ownership. Companies may "see the writing on the wall, even without legislation, that employees are just a whole lot more wary of these kinds of plans," Kruse said.

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