Can Congress Save Your 401(k)?

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In February, Labor Secretary Elaine Chao outlined a pension-plan fix similar to the one now in the House

Holding hearings to yell at Jeff Skilling and Ken Lay was easy. Now, some four months after Enron officially went poof, Congress is finally getting to the hard part — trying to apply won't-happen-again medicine to all those hearts — employees', investors', capitalism's — that were broken by the energy trader's ignoble collapse. And this is where "fixing the system" gets complicated.

The proposal

First to bat is pension plans, with a bill sponsored by Reps. Rob Portman (R-Ohio) and Benjamin Cardin (D-Maryland) set to hit the House floor Thursday. It's no accident that this issue is getting first crack at re-regulation; any issue involving retirees also involves lots of voting seniors. But it's also no cinch that much good will get done.

The bill — more or less an encapsulation of what President Bush suggested a while back — makes the easy fixes. Companies must warn employees 30 days before freezing trading in their 401(k) retirement plan accounts — remember those Enron victims? — and company executives would be banned from selling their company stock during blackout periods when workers can't make changes to their 401(k) accounts. As for diversification, it also forces companies that use their own stock to match employees' contributions to allow workers to sell that stock after three years. (Enron's threshold was a penny-pinching age 50.)

Workers will also be allowed to receive investment advice from the same companies that manage their 401(k) retirement accounts. Democrats oppose that idea, saying conflicts of interest would be likely. The final bill also will include a proposal to let workers pay for their own investment advice with pretax dollars automatically deducted from their paychecks.

The reaction

Democrats, furiously softening the ground for when the Senate comes up with its own version down the road, are already on the attack. None of the GOP's bills "would prevent big corporations from taking advantage of their employees as Enron did,'' said Dick Gephardt and Martin Frost (D-Texas) in a letter to Speaker Dennis Hastert. "We fear that characterizing the committee-passed bills as a response to the Enron collapse would seriously mislead millions of Americans about the security of their 401(k) plans.''

They may be on to something, even if they don't know it. Bush's proposals aren't just designed to keep the Enron stink off him for the midterms; it's also to start the difficult task of prepping people for life under a partially privatized Social Security system.

What free-market Republicans believe deep down — that 401(k)s started as an IRS-induced way for companies to lure talent and impress employees, and should stay that way and out of the government's bailiwick — is getting obscured by a political drive to make voters feel safe from the vagaries of the market. But what Democrats believe deep down — that government should itself make sure those employees' retirements are safe from the vagaries of the market — can't ever really happen. And so the mad piling of laws on top of laws — and loopholes on top of loopholes — continues, and nobody could be any safer than if they just paid some attention to their money from the start.

Companies Respond

Meanwhile, the corporate overlord of this writer, AOL Time Warner, recently sent out letters informing all worker bees — corner office or not — that new company-match contributions in company stock would be immediately transferable to, well, whatever other investment option we worker bees might find enticing. Do nothing, and the money still buys company stock (this strategy also works if you happen to believe in the company's prospects). Want to move it all into, say, Microsoft? Good old AOLTW won't squawk, not now or three years from now.

Disney has already made a similar move. And once again the private sector, whether it's out of fear of regulation or simply to woo and retain employees, has a way of staying ahead of new political wills and new laws that generally just make things more complicated for employers and employees alike.