Retirement savings wiped out by Enron collapse

When Enron Corp. went from the one of the world’s largest energy trading companies to bankruptcy court in an incredibly swift fall, nearly 1,000 members of Electrical Workers Local 125 at Enron-owned Portland (Ore.) General Electric saw most of their retirement savings evaporate, as did more than 11,000 other Enron employees around the nation.

Two of those IBEW workers told a Senate panel Dec. 18 that their Enron 401(k) plans—bulging with company stock—became virtually worthless, while Enron executives were bailing out by selling off more than $1 billion in Enron stock.  

"Little did those of us working hard every day to make the company successful know what was going on at the top of Enron," said Robert Vigil, an electrical machinist working foreman. "We trusted management’s glowing reports of strong financial growth and opportunity. Then in October, Enron’s house of mirrors came crashing down."

That was when word of the company’s business irregularities began coming to light.

"This is an energy company that morphed into a trading company involved in hedge funds and derivatives. It took on substantial risk, created secret off-the-books partnerships and, in effect, cooked the books under the nose of accountants and investors," said Sen. Byron Dorgan (D-N.D.), chairman of the Senate Commerce, Science and Transportation Committee’s Consumer Affairs, Foreign Commerce and Tourism subcommittee, which held the hearing.

"At the time when executives, board members and other insiders were selling over $1 billion in stock and profiting handsomely," Dorgan said, "employees and investors were being set up to take a financial beating."

At a December 12 meeting before the House Financial Services Committee, AFL-CIO Secretary-Treasurer Richard Trumka said Enron "is a story of people so shameless and greedy that literally as the bankruptcy papers were being drawn up, they were still passing what remained of the firm’s cash out to themselves—$55 million on the last working day before they filed for Chapter 11."

Enron’s contributions to workers’ 401(k) accounts were in company stock, and the energy giant encouraged workers to put their own 401(k) contributions into Enron stock, according to Vigil, IBEW Local 125 member Donald Eri and other Enron workers who testified at the Senate hearing.

Worth more than $80 a share one year ago, Enron stock is worth less than $1 a share today. While company executives were cashing out as the stock began to decline, workers had few options to protect their investments.

"The plan prohibits any employee under age 50 from trading the company’s contributions. In other words, the company puts in its own stock, and until we reach age 50, we hold that stock….Until very recently, even after age 50, we could only trade 25 percent of the company’s contributions per year," Vigil said.  

In October, as Enron stock was plunging with the news of the company’s suspicious dealings, the company locked workers out of their 401(k)s, preventing them from recasting their portfolios. Enron claimed the lock-down was planned long before the stock dive as part of a change in plan administrators and also claimed it was in effect only from Oct. 29 to Nov. 12.

"It seems strange to me that as soon as the really bad news came out on Enron, we found ourselves unable to move out of the stock. I have seen that Enron says we were only locked out of our accounts for 10 trading days….But as early as Sept. 26, my co-workers were finding that they could get access to their accounts, but they could not conduct any transactions. As the truth about Enron started to come to light—and as the officers at the top cashed out—we, the employees, had no choice but to ride the stock into the ground," Vigil said.  

Also appearing before the panel, Damon Silvers, AFL-CIO associate general counsel, testified on several securities, stock trading and investment reforms and other measures that could help protect workers from future Enron-like catastrophes, including stronger rules covering stock, securities and investment practices by 401(k) and pension trustees; requiring greater independence of auditors and analysts who are charged with monitoring a fund’s practices and performance; and establishing clear conflict of interest guidelines for auditors and analysts.