Industry observers and lobbyists cautiously applauded President Bush's move earlier this month to appoint a team of top administration officials to review rules regarding pension plans in the wake of the financial meltdown of Enron.
The 401(k) plans of many Enron employees were weighted heavily in Enron stock, which resulted in substantial losses in retirement savings when the company imploded.
"There have been a wave of bankruptcies that have caused many workers to lose their pensions and that's deeply troubling to me," Bush said.
The group will be headed by Secretary of Treasury Paul O'Neill, Secretary of Labor Elaine Chao and Secretary of Commerce Don Evans, who will pick a team of experts to review the issue. In addition, Bush said O'Neill, the Securities and Exchange Commission, the Federal Reserve and the CFTC will also convene a group to examine corporate disclosure rules.
"There needs to be a full review of disclosure rules to make sure that the American stockholder, or any stockholder, is protected," Bush said.
Clare Hushbeck, a senior legal representative with the American Association of Retired Persons, said the government's intervention on the 401(k) issue will likely result in broad limits on how much stock an employee can hold in his or her own company. In addition, she said companies that match their employees' 401(k) contributions with stock may face restrictions on how much stock they can contribute.
The issue is prickly, she said, because companies are not legally required to match any contributions to their employees' retirement savings. If the government imposes too many restrictions on employers, those companies may cease to contribute at all, Hushbeck said.
"There's a fine line," she said.
The office of Rep. John Boehner (R-Ohio), who chairs the House Committee on Education and the Workforce, also applauded Bush's plan. Last year Boehner successfully pushed a controversial bill through the House that would allow fund companies to provide investment advice to 401(k) investors. The bill has just been handed to the Senate Finance Committee for review, said Kevin Smith, an aide to the House committee.
"Many of those [Enron] employees did not have access to good, quality investment advice," Smith said "If they did, they would not be investing 60% of their 401(k) in company stock."
Fund companies, meanwhile, were slow to respond to Bush's announcement. Fidelity Investments and Principal, two sizable 401(k) providers, had no comment on the matter. But others cautiously applauded the move.
Ted Benna, who launched the first 401(k) two decades ago, said he has been lobbying for reforms in the way the retirement plans are managed since last summer.
"The fact that the president has taken this action underscores the seriousness of the matter given all of the issues that he's having to deal with at this time," he said. "One of the problems is that there is too much money in company stock. I agree that it's time to step back and look seriously at what needs to be done."
But Benna had hoped the impetus for reform would come from the private sector, not the government. If the industry doesn't come up with its own solutions, he said, today's announcement shows that Washington will and reforms from inside the Beltway will likely prove less palatable to those who provide retirement plans.