Enron-Inspired Reform Of 401(k) Rules

Workers with 401(k) retirement plans are getting a new legal protection next year, a regulation that requires 30 days' notice before a company can block access to retirement savings accounts for administrative changes.

The Labor Department issued the regulation Monday, to take effect Jan. 26. Congress ordered the rule as part of a corporate accountability law passed this summer.

Congress has failed to pass legislation strictly to tighten protections for workers with 401(k) plans. The 30-day notice of blackout periods was about all Republicans and Democrats could agree on, so it was included in the corporate accountability bill that passed.

About 40 million Americans have about $1.5 trillion invested in 401(k) plans.

Plan administrators who fail to provide the 30-day notice can be fined up to $100 per day per plan participant. Companies are not required to notify the Labor Department of a blackout period.

Notices to workers must contain reasons for the blackout period, a description of participants' rights being suspended during the time, the start and end dates and a statement advising participants to evaluate current investments based on their inability to make changes during the blackout period.

Those requirements "will create incentives for companies to keep blackouts as brief as possible," said Ann Combs, assistant labor secretary for pension and welfare benefits.

Corporate executives also will be barred from selling company stock or exercising options during blackout periods. Details of that requirement will be issued by the Securities and Exchange Commission.

The Bush administration publicized the regulations in President Bush's radio address Saturday. The White House has its eye on the Nov. 5 elections that will determine control of Congress. Bush hopes to deflect Democrats' claims that the economy has worsened during his presidency, and he has done little to help.

At least one proponent of stronger consumer protections criticized the White House and Congress, saying much more needs to be done.

The White House "is trying to make this into a big deal. This is not a big deal. In fact, this is a red herring," said Karen Friedman, policy director for the Pension Rights Center. "The so-called blackout period is a very small part of the problems that were created in the fallout of Enron and WorldCom."

The law in part responded to the predicament of Enron Corp. workers, many of whom lost their retirement savings when the company's stock value plummeted last year. Thousands of workers were barred for weeks from accessing their accounts as the retirement plan changed administrators. The 20,795 participants had about 63 percent of their assets invested in company stock.

Under intense pressure from business groups, Congress has done nothing to limit how much company stock that workers can invest in as part of their 401(k) plans. Some Senate Democrats favored imposing limits that would force plan diversification, but an agreement was not reached and the Senate failed to act on any 401(k) legislation.

The Republican-controlled House passed a bill that includes a provision to allow workers to receive investment advice from the same companies that manage their 401(k) retirement accounts. Republicans say that would help workers diversify their accounts, but Democrats claim the advice would be tainted by financial conflicts of interest.