NCPA - National Center for Policy Analysis

Avoiding Future Enrons

February 6, 2002

The National Center for Policy Analysis has published a plan to help protect employees from the plight of many Enron workers whose retirement investments melted to nearly zero when that company crashed. Prepared by Brooks Hamilton of the NCPA and financial columnist Scott Burns, it's called the "American Freedom 401(k) Plan."

Here are some of its features:

  • It would allow employers to provide investment advice or hire investment professionals to manage the plans -- and funnel 401(k) monies into diversified portfolios designed to reflect the market as a whole.
  • Employees who do not exercise a choice would have their funds channeled into such plans -- or they could choose to opt out.
  • Employers would be granted a "safe harbor" from lawsuits that might arise from giving employees investment advice -- thus avoiding burdensome new regulations.
  • The vesting of 401(k)s would be 100 percent and immediate.

The plan also would require a minimum contribution sufficient to provide a reasonable level of retirement income -- unless an employee specifically opts out.

A recent survey of 105 large companies found 40 in which more than half of 401(k) assets consisted of the companies' own stock. This proposal would solve the problem faced by Enron's workers. It also addresses another concern: most employees are lousy investors, choosing either too much or too little risk relative to the expected return.

Source: Brooks Hamilton (NCPA), "Learning Our Lesson From Enron," Washington Times, February 1, 2002.


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