Skip to content

Washington, D.C. – U.S. Senator Mike Enzi, R-Wyo., addressed the importance of strengthening America's private pension system at a hearing of the Senate Health, Education, Labor and Pensions Committee yesterday.

Enzi said in a written statement submitted to the committee that pension reform should be addressed by examining the issue from a broad perspective and enacting pension reform legislation that would effect large and small companies alike, rather than limiting the focus to Enron and the factors that led to its collapse.

Enzi also said that employees should be provided with more flexibility to exercise investment decisions based on sound advice and information and that they should be given the tools to help them do so.

Enzi was pleased with the President's proposal for pension reform and said it is designed to give workers greater flexibility to diversify and safeguard their retirement accounts and would provide greater protection for the retirement assets of millions of Americans.

Enzi's complete statement is included below.

Michael B. Enzi
Senate Committee on Health, Education, Labor and Pensions
Hearing "Protecting America's Pensions: Lessons From the Enron Debacle"
February 7, 2002

On December 2nd of last year, Enron Corporation filed for Chapter 11 bankruptcy protection. Everyday since then, we only have to pick-up the paper or turn on the news to hear about the devastating impact of Enron's collapse on the retirement assets of many of its employees. Across the country, other workers are reading the paper or watching news stories about Enron and wondering if the same thing could happen to them. We in the Senate, and particularly on this committee, have a solemn responsibility to address the fears of millions of Americans about their pensions.

A critical component of our responsibility is to separate fear from fact. Only after doing so can we chart the proper course of action for strengthening the private pension system without undermining the very value of this system. This is what workers across America have called upon us to do, and this is what the President has called upon us to do.

As we seek today to strengthen the protections of the private pension system, we must guard against actions that will result in less protection tomorrow. I'm not only referring to protecting an individual's retirement assets in 401(k) plans, I'm also referring to protecting the sponsorship of the private retirement plans that have also served as a fuel for the capital markets and, in turn, the nation's economy.

As we review the facts surrounding Enron's retirement plan to determine what changes in pension law are warranted, we should bear in mind the following goals:

1. To protect the retirement assets of approximately 42 million American workers in 401(k) plans without unduly restricting the sponsorship of or contributions to such plans;

2. To protect an employee's ability to exercise investment decisions for his or her retirement account; and

3. To empower employees to make informed investment decisions by providing them with account information and access to investment advice.

To avoid taking action that will weaken, rather than strengthen, the private pension system and cause long-term economic damage to individual workers, their employers and the economy as a whole, we must carefully examine the facts that contributed to the collapse of Enron's 401(k) plan assets. The following information we do know:

• As of December 31, 2001, 62 percent of the assets in Enron's 401(k) plan consisted of shares of Enron stock. Enron has estimated that 89 percent of this stock was purchased by employees through salary deferrals and the remainder was from Enron's matching contributions.

• The Enron 401(k) plan required participants who received employer matching contributions of company stock to hold those contributions in the form of company stock until the age of 50.

• During a period in October and November of last year when Enron was changing 401(k) plan administrators, participants were prohibited from re-allocating assets in their plan during this "lockdown" or "blackout" period.

We cannot look at these facts in isolation. We must keep in mind all the factors that contributed to the collapse of Enron, and with it, the retirement assets of many of its workers. I also sit on the Banking Committee which is reviewing accounting issues raised by the Enron collapse.

We also cannot look at Enron in isolation. We cannot limit our focus merely to Enron's circumstances if we are to enact effective and appropriate pension reform. We must look at the universe of 401(k) plans and the impact that changing pensions law would have on the sponsorship of and contributions to such plans. We must also look at the impact that decreased sponsorship of or contributions to 401(k) plans would have on capital markets and the economy.

We cannot limit our focus merely to large companies such as Enron. If we are to enact pension reform legislation that will effect large and small companies alike, we must also take into account the unique needs of small or start-up companies and their employees. Such companies might not otherwise be able to sponsor 401(k) plans for their employees if they are required to contribute cash rather than company stock. Furthermore, the alignment of interests between employers and employees that comes from employee ownership of company stock is particularly important for small or start-up businesses. We must be careful not to inhibit an employee's ability to participate in and benefit from the growth of their companies in our effort to protect them.

At the heart of the issue before us today is the distinction between defined benefit plans and defined contribution plans, such as 401(k)s. Under defined benefit plans, the risk for investment decisions is placed on the employer/sponsor. Under defined contribution plans, the risk is shifted to the employee/participant. The Employee Retirement Income Security Act recognizes this distinction by placing diversification requirements and company stock restrictions on defined benefit plans that are not applicable to defined contribution plans.

Various legislative proposals would impose defined benefit plan type restrictions on investment options in 401(k) plans. Rather than imposing more restrictions on investment options in such plans, I believe the better course of action is to provide employee/participants with more flexibility to exercise investment decisions based on sound advice and information. The best protection an employee has against risk in 401(k) retirement assets is sound advice and information about a diversified investment strategy. Since employees bear the investment risk in a 401(k) plan, they should be afforded the tools to make prudent investment decisions and empowered to exercise these decisions.

I'm very pleased to see that the President's proposal for 401(k) plan reform is designed to do just that. The President's plan would give workers greater freedom to diversify, and thus safeguard, their 401(k) retirement accounts. The President's proposal would also give worker's greater protection during blackout periods and greater access to investment advice and information. The legislative reforms called for by the President would provide greater protection for the retirement assets of millions of Americans - both today, while the collapse of Enron is fresh in our minds, and in the future.

I look forward to working with the President and my colleagues to enact these important reforms.