President Bush today appointed a team of top administration officials to review rules regarding pension plans in what he called an effort to ensure the safety of workers retirement savings.
The move, which came in a meeting with Bushs economic team this morning, is largely in response to the bankruptcy of Enron, the Texas energy firm that has ties to the Bush administration and now faces a criminal investigation by the Justice Department.
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 filed for bankruptcy.
"There have been a wave of bankruptcies that have caused many workers to lose their pensions and thats deeply troubling to me," Bush said during the meeting.
The group will be headed by Secretary of Treasury Paul ONeill, 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 ONeill, the Securities and Exchange Commission, the Federal Reserve and the CFTC will also convene a group to examine corporate disclosure rules in the wake of the Enron debacle.
"There needs to be a full review of disclosure rules to make sure that the American stockholder, or any stockholder, is protected," Bush said.
Enrons collapse has sparked inquiries into the Bush administrations relationship with the companys top executives and some wondered today whether the presidents announcement was an effort to shield the administration from political repercussions. Kenneth Lay, Enrons CEO, is "a supporter" of the administration, Bush said, and had served under him as head of the Governors Business Council when Bush was Governor of Texas.
But Bush said he had "never discussed with Mr. Lay the financial problems of the company," and that the last time they had met was at a fundraising event for literacy hosted by former first lady Barbara Bush.
Clare Hushbeck, a senior legal representative with the American Association of Retired Persons, said the governments 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 a prickly one, 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.
"Theres 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 Bushs 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."
Smith said the Education and the Workforce Committee is considering its own hearings on the Enron debacle, but he added: "We do not want to rush into some kind of legislative response that could jeopardize the retirement savings of millions of Americans."
Fund companies, meanwhile, were slow to respond to Bushs announcement today. Fidelity Investments and Principal, two of the largest 401(k) providers, had no comment on the matter this evening. 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 hes 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 its 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 doesnt come up with its own solutions, he said, todays announcement shows that Washington will and reforms from inside the Beltway will likely prove less palatable to those who provide retirement plans.
"Thats why the industry needs to get its head out of the sand," he said. "Its not going to go away as an issue."