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AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K)
JAMES R. GRIFFIN
JACKSON WALKER L.L.P.
214-953-5827
E. STEVE BOLDEN, II
JACKSON WALKER L.L.P.
214-953-6093
THE 2001 SHARE PRICES
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
25-Jan
28-Sep
19-Oct
26-Oct
30-Oct
13-Nov
20-Nov
Now
WHAT WENT WRONG
Shell Companies Sham Partnerships Elaborate Schemes To Hide Losses Culture of Deception
WHO LOST
21,000 Active and Retired Workers $1.3 Billion $ 62,000 Per Person Tim Ramsey: $985,000 Roy Rinard: $472,000
WHO WON
Cindy Olson VPHR $6.5 Million Ken Lay Chairman $101 Million Andrew Fastow CFO $30 Million Jeff Skilling President $67 Million
OVERVIEW
Enron’s 401 (K) Fiduciary Duties The Enron 401 (K) Litigation The Government The Lessons
ENRON’S 401 (K)
Summary of Plan Company Stock The Blackout
PLAN DESIGN Eligible on 1st Day of Month After Hire Contributions
Before Tax After Tax Match Rollover
Investments 20 Mutual Funds Self – Directed Brokerage Company Stock
Full Vesting After 1 Year Loans, Withdrawals
COMPANY STOCK
Mandatory Match Diversification at Age 50
Discretionary All others
COMPANY STOCK INVESTMENTS
19 % of All Assets $ 380 Billion 39 % of Assets in 5,000 + Participant Plans
OTHERS PLANS
Proctor and Gamble 94% Sherwin Williams 91% Abbott Laboratories 90% Pfizer 85% Coca – Cola 85% Texas Instruments 70% Enron 62%
THE BLACKOUT
Reasons For Change Planning Communication Execution
FIDUCIARY DUTIES
ERISA Framework Qualifications Investment Responsibilities
APPLICABLE LAWS
Employee Retirement Income Security Act of 1974 (ERISA) Protection of Participant Rights
Internal Revenue Code of 1986 (Code) Tax Determination Letter Ongoing Qualification
State Laws Preemption
RELEVANCE OF FIDUCIARY RESPONSIBILITY
Employer Objectives and Cost Employee Satisfaction Personal Liability Contribution Class Action Co-Fiduciary Liability Criminal Liability
INSURANCE
Fidelity Bond Fiduciary Insurance D&O Insurance Corporate Indemnification Agreements
WHO IS A FIDUCIARY?
Discretionary Authority or Discretionary Control Over the Management of the Plan
Any Authority or Control Over the Management or Disposition of Plan Assets
Discretionary Authority or Discretionary Responsibility in the Administration of the Plan
Renders Investment Advice for a Fee or Has Any Authority to Do So With Respect to Plan Assets
EXAMPLES OF FIDUCIARIES
Trustee Plan Administrator Investment Advisor Plan Committee
FIDUCIARY DISQUALIFICATIONS
Felony Conviction DOL Prohibition
FIDUCIARY CANDIDATES
CEO CFO Human Resources General Counsel Other Employees
FIDUCIARY DUTIES
Exclusive Benefit Prudent Man Diversification Compliance With Plan Documents Prohibited Transactions
INVESTMENTS
Investment Policy Statement Reliance on Experts and Consideration of
Alternatives Monitoring Expenses
PARTICIPANT DIRECTED INVESTMENTS
Meaningful Independent Investment Control Range of Investment Alternatives Frequency of Changes Adequate Information Education vs. Advice
THE ENRON 401 (K) LITIGATION
Plaintiffs Defendants Arguments Defenses Remedies Outcome
GOVERNMENT’S RESPONSE
Department of Labor President’s Proposal Other Legislative Proposals
DEPARTMENT OF LABOR
R.E.A.C.T. Independent Fiduciary 1–866–275-7922
PRESIDENT’S PROPOSAL
Blackouts Fiduciary Responsibilities Trading Restrictions 30 Day Notice
3 Year Diversification Expanded Disclosure Investment Advice
OTHER LEGISLATIVE PROPOSALS
Caps Insurance ERISA
Punitive Damages Attorneys Fees Other Damages
Lower Deductions Joint Representation Plan Expenses Bounty Program
THE LESSONS
Conduct Periodic Committee Meetings Keep Minutes Adopt Investment Policy Statement Review Investment Performance Purchase Fiduciary Insurance Consider Alternatives Evaluate Costs
THE LESSONS(continued)
Educate and Communicate With Employees
Review 5500 Adopt Other Policies/Procedures as
Necessary, Including Claims QDROs Administrative Compliance Investment Education Loans
James R. GriffinJACKSON WALKER L.L.P.901 Main Street, Suite 6000Dallas, Texas 75202Direct: 214-953-5827Fax: 214-953-5822Email: [email protected]
E. Steve Bolden, IIJACKSON WALKER L.L.P.
901 Main Street, Suite 6000Dallas, Texas 75202
Direct: 214-953-6093Fax: 214-953-5822
Email: [email protected]
