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Firms Cautious on 401(k) Changes

With Congress unable to agree on how far to go with reform legislation, some employers are holding off on revising their retirement plans.

April 08, 2002|KATHY M. KRISTOF | TIMES STAFF WRITER

The security of many investors' biggest financial asset--their 401(k) retirement plan--has become a major issue in the aftermath of the bankruptcies of Enron Corp., Global Crossing Ltd. and other once high-flying giants.

But hopes earlier this year for rapid reform of 401(k) plan rules that have long vexed many workers have been frustrated.

Congress appears deadlocked on what change to mandate through legislation, even though calls for reform were heard from both sides of the aisle and from the White House after the Enron and Global Crossing failures obliterated millions of dollars in employee retirement savings.

Some companies already have acted on their own, hoping to preempt reforms by changing some aspects of their plans. Gannett Co. and International Paper Co. said they removed restrictions that barred employees from selling company stock held in their 401(k) plans.

FOR THE RECORD
Los Angeles Times Thursday April 11, 2002 Home Edition Main News Part A Page 2 A2 Desk 2 inches; 40 words Type of Material: Correction
401(k) contributions--A story in Monday's Investing section noted that a new federal law allows higher contributions to 401(k) accounts. However, some California employers don't permit workers to make the higher contributions because they aren't yet authorized under state law.

Such restrictions are fairly common among the roughly 2,000 companies that use their own stock to match workers' 401(k) plan contributions. They typically forbid employees from selling company stock received as matching contributions until the workers reach age 50 or 55. Gannett and International Paper said employees can now sell matching-contribution stock as soon as they get it.

ChevronTexaco Corp. announced it would make similar changes to its 401(k) rules. Packaging firm Ball Corp. eliminated stock-sale restrictions when it restructured its 401(k) plan in December.

But as hopes fade for a comprehensive 401(k) reform bill from Congress this year, companies have become increasingly reluctant to make major changes for fear that whatever they do may need to be undone or modified later.

Modest changes--the addition of investment options, for example--continue, experts note. But the big issue of plan design is being put on hold.

"What the legislative debate has ended up doing is freezing the world," said Dallas Salisbury, chief executive of the Employee Benefit Research Institute in Washington. "In the present situation, people are thinking that there is no way to know what is going to happen.

"They don't want to do anything until there is a clearer direction."

The source of the confusion isn't hard to find: Lawmakers are weighing several bills that would change how companies set up their 401(k) plans, and it's anybody's guess what provisions will make it into law.

One proposal, sponsored by Sen. Edward M. Kennedy (D-Mass.), would bar companies from providing employer stock as a 401(k) investment option while also making matching plan contributions in company stock. Companies would have to choose one or the other. The only exception would be for companies that also offered a traditional pension--the type that pays workers monthly benefits for life--in addition to a 401(k).

Other legislative proposals would require firms to lift all restrictions on workers' sale of company stock within 401(k) plans, giving employees the right to diversify their investments more quickly than some plans now allow.

But that's just the tip of the iceberg. Kennedy's proposal also would create "joint trusteeship" of 401(k) programs, giving rank-and-file workers considerably more say in how the plans are designed. Republicans--and many employers--think this goes too far and are fighting to keep it out of the bills.

Proposals dealing with how much investment education employees should be offered in conjunction with their 401(k) plan, and how that education should be provided, also are being debated in Congress.

Likewise, some proposals would change company rules that govern so-called blackout periods, which occur when employers switch 401(k) plan administrators and workers are banned from trading within their 401(k) accounts.

Political observers said congressional leaders are becoming less willing to compromise on these issues as the debate wears on. And many are saying that a 401(k) reform bill probably won't be passed until next year.

For companies considering changes, that creates a difficult situation, said Libby Sartain, senior vice president of human relations at Internet firm Yahoo Inc. and former head of the Society of Human Resource Management in Washington.

It can take years of study and cost millions of dollars for large employers to make changes to their 401(k) plans, Sartain said. That's partly because the plans already are governed by complicated laws and regulations that must be carefully examined before design changes are made to ensure that no rules are violated.

In addition, larger firms can spend a small fortune rewriting plan documents, creating brochures and holding seminars to communicate the news to workers once a change has been made.

"There are going to be some companies that are going to wait and see what comes down before they make any changes," Sartain said. "There are so many different proposals coming down ... and you don't want to change something and realize that you're going to have to spend all the time and all the money to do it all over again."

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