Whose 401(k) Is It Anyway?

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Full disclosure time — this employee of AOL Time Warner has a 401(k), and between my allocations and the matching-shares program it's at least 85 percent in company stock. (I'm not sure, I hardly ever check it.) Now, you may or may not have been following AOL lately, but it ain't exactly going up, and there's certainly no guarantee that it ever will. And yet I have not changed my allocation, and have no current plans to.

It may not get said a lot these days, but saving for retirement and having a 401(k) are not necessarily the same thing. There's no law that says a company has to offer a 401(k) to employees — it's a perk offered by employers to lure talent — and none that says an employee has to take it. Ultimately, an employee has to make a decision whether this particular employer benefit — and the way the employer structures it — is worth a damn. Which is the same decision they've got to make about the worth (and the stock) of the company that's offering it.

And it has long been a tenet of pro-business Republicanism that no one ought to be making that decision for them. Which is why George W. Bush, unfurling Friday his proposed changes in the nation's 401(k) laws that will supposedly prevent Enron from ever happening again (and Bush from paying any more for it politically), did not propose that employees be limited in how much of their company's stock they can hold in their account. (What if it happens to a good investment?) It's also why the things Bush is proposing are, to put it mildly, rather mild. Bush's plan, hot off the task-force presses, would require companies to:

  • Issue quarterly benefit statements and performance updates instead of the annual ones mandated now.

  • Allow workers to sell company stocks and diversify into other investment options after they have participated in a 401(k) plan for three years. (Some companies are already there, others aren't.)

  • Give 30-days' notice before a blackout period begins — and once it does, forbid senior corporate executives from selling company stock during periods when workers are unable to trade on their plans. A company would also be more liable for what happens to worker investments during the blackout. (Under current law, when 401(k) plans are controlled by workers, employers are not responsible for the result of workers' investment choices. This "safe harbor" would now no longer apply during blackout periods.

    Hmm. Quarterly statements? Anybody read those? Most 401(k) plans these days offer a Web site where workers can juggle assets 24-7-365 (except of course for blackouts). Three-year diversification rights? Bush's biggest nod to government intervention, and a nice-sounding idea, even if it's not exactly in the free-market handbook. Wonder if anyone will take the companies up on it.

    And the blackout period — oh, that blackout period. It may be a pleasant thought that Ken Lay wouldn't have been able to pay back that billion-dollar loan with company stock during the lockdown. But if Bush really wanted to make things fair for workers and investors, "OK for the sailor" and "OK for the captain," as he put it Friday, he'd make a company halt all trading of its stock — Wall Street too — while a blackout period was on. Then we'd see how often those blackouts occurred — and what happened during them.

    But that would be silly, because the reason companies give away shares in a 401(k) so readily to the average salaryman is because they aren't real shares. You can't turn them into cash until you're 60 (in the meantime not paying taxes on the money they represent), and thus they don't come with the same rights as shares that an outside investor actually pays hard currency for. Neither are they like the gobs of shares that top executives routinely get as part of their agreed-upon compensation (again, it's about competitively luring talent). When Linda Lay was crying for the cameras last week about how she and her husband lost everything too, she may or may not have been shooting us straight — but she sure wasn't talking about Kenny Boy's 401(k) plan.

    Bush may be trying to eventually turn Social Security into something like a 401(k) plan, but not even the Enron mess is going to scare him into turning 401(k)s into something like Social Security. Nobody in Congress is moaning about the employees who signed up at a dot-com for salary-plus-150,000-stock-options and lost it all when the stock ceased to exist — what's so different about Enron? That company's employees joined a high-flyer and apparently bet it all on high-flying company stock. The company failed — and either none of them saw it coming (though the stock had already been cut in half when the blackout started) or none of them thought the slide would last.

    Tough break.

    But back to me. The way I figure it, I work here. They're my worthless-till-I'm-60 shares and if I want to load up on them when the getting's good that's my decision. (And yes, it does make financial professionals wince when I admit this.) But it's still my call, and if I want a retirement plan that isn't tied to my company's fortunes I can put the money in an IRA or I can go work for somebody else. If AOL then wants to convince me to stay by changing its plan and matching my monthly put-in with, say, Microsoft shares (up 46 percent last year), then they can go right ahead.

    I'm not holding my breath for that one, and I'm not holding my breath for George W. Bush to start proposing a lot of serious legislation aimed at saving American employee-investors from themselves.

    But I wouldn't have it any other way.