Small Business Builder: Good Retirement Plans

Feb. 20 -- Enron might be a golden goose for late-night comedians, but as far as its employees are concerned, the company simply laid an egg.

Like most of the nation, you're probably outraged by the Enron 401(k) fiasco; but many of us need to stop cluck-clucking long enough to make sure our own companies' retirement plans are in order.

Companies that sponsor qualified retirement plans — ESOPs, Keoghs, profit-sharing and 401(k) plans, for example — must amend the plans to comply with tax-law changes over the past several years. If you're affected, your deadline could be as early as Feb. 28, 2002, though cut-off dates vary depending on the type of plan. Failure to comply could disqualify your plan retroactive to 1995.

Call your accountant if you're not sure about your status. You'll find more information on the IRS Web site.

Can It Happen to You?

Like some 2,000 other companies, Enron offered its own stock as an option in its 401(k) plan. By federal law — the 1974 Employee Retirement Income Security Act (ERISA) — only 10 percent of defined-benefit plan assets may be invested in the employer's stock. But Enron's plan, a 401(k), is a defined-contribution plan. ERISA diversification rules apply to 401(k) plans only when such plans require employees to buy their employers' stock.

Enron made all its matching retirement-plan contributions in Enron stock, but employees were free to use their own 401(k) money to buy other securities — until Oct. 17, 2001, when Enron "locked down" employee accounts. Lawsuits against Enron allege that company executives — aware of impending disaster — sold off their Enron stock but denied employees the opportunity to do so.

At the end of 2000, about 62 percent of the company's 401(k) assets consisted of Enron shares. Employees and retirees saw the value of their retirement accounts plummet as Enron stock prices fell from $90 in August 2000 to under $1 a share last December.

Many experts believe ERISA's rules should be expanded to cover defined-contribution plans such as 401(k) plans.