NCPA - National Center for Policy Analysis

Lockdown of 401(k) Plans Has Alerted Workers

January 17, 2002

Thanks to the experiences of Enron employees who saw their retirement savings vanish when they were unable to sell their company's stock as its value plummeted, those involved in 401(k) plans at other companies now have a heightened interest in how "lockdowns" work.

  • Lockdowns -- also known as "blackouts" or "quiet periods" -- occur when employers prevent workers from moving out of the company's stock while their plan is being transferred to a new record keeper or some structural change is in the works, such as a shift to daily valuation from monthly valuation.
  • Lockdowns are ordinarily legal and routine -- unless company officials know that a lockdown will coincide with grim news that could send the stock lower.
  • Companies typically alert employees months in advance of planned lockdowns to give them time to shift their investments around if they choose.
  • Most companies prevent employees from selling shares they receive from the company until they reach a certain age.

If nothing else, Enron's lockdown will lead to closer scrutiny of how companies communicate these events. Some Enron employees allege they were informed on September 27 the lockdown would start October 19 -- although it didn't start until October 26. As a result, they missed selling their stock for almost $30 a share. When the lockdown ended November 13, it had fallen to $9.98 a share.

Source: Ellen E. Schultz, "Lockdowns" of 401(k) Plans Draw Scrutiny," Wall Street Journal, January 16, 2002.


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