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April 15, 2002 01:00 AM

NOT ENOUGH?

SOFTENED PENSION BILL FACES HARD SELL IN SENATE

Vineeta Anand
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    WASHINGTON - Employer groups last week succeeded in watering down pension legislation in the House of Representatives to prevent another Enron-style blowout.

    By a 255-163 vote, the Republican-controlled House passed legislation critics say fails to prevent employees from being overloaded with employer stock in their retirement plans and diminishes the chances of a compromise with the Democratic-controlled Senate, where liberals such as Sen. Edward Kennedy, D-Mass., hold sway over committees with jurisdiction over pension matters. Mr. Kennedy is chairman of the Senate Health, Education, Labor and Pensions Committee that last month passed a more stringent pension measure that has been assailed by employer groups.

    A loose-knit coalition of former Enron Corp. employees also opposes H.R. 3762, The Pension Security Act, which passed the House on April 11.

    Although Rep. John Boehner, R-Ohio, and other key Republicans have maintained that professional investment advice is the key to ensuring employees prudently invest their retirement savings, critics of the legislation say the investment advice provision in the bill lets plan sponsors limit that advice to all investment options except employer stock.

    Mr. Boehner, who heads the House Education and the Workforce Committee, sponsored the investment advice bill included in the package of pension reforms.

    An irony

    "Since the paramount threat to prudent 401(k) plan diversification is overexposure to company stock, it is ironic that the investment advice provision fails to preclude advisers and employers from contracting to limit the advice to investments other than company stock," said J. Mark Iwry, former benefits tax counsel at the Treasury Department in the Clinton administration.

    Michelle Varnhagen, Democratic labor counsel to Mr. Boehner's committee, said the investment advice provision also gives investment advisers the freedom to provide advice only on funds they offer, not address the suitability of other investment options.

    Roderick DeArment, partner at the Washington-based law firm Covington & Burling and previously deputy Labor secretary in the first Bush administration, has written several letters to lawmakers warning them of the shortcomings of the investment advice bill.

    "I am writing to point out to you that (the bill) contains a glaring flaw that would have been ineffective in assisting Enron employees (because) the investment adviser is free to limit advice to his products. One of the reasons is so the adviser would not have to deal with employer stock," he wrote in a letter earlier this year to the Democrats on the House Education and the Workforce Committee.

    Mr. DeArment, who represents John Hancock Financial Services, Boston, said he is hopeful that point will be discuss if the bill goes to a conference committee.

    A spokesman said Mr. Boehner is "open to clarifying the issue of company stock."

    Rep. Benjamin Cardin, D-Md., who voted against the Republican pension package last week, also is concerned about this issue, as well as others in the investment advice provision, according to a staffer. Mr. Cardin had asked Mr. Boehner to ensure investment advisers provided more information about fees of investment options that they choose as well as fees of other options they did not pick, as well as providing a low-cost broad-based index fund.

    Critics also say the Republican bill diffuses a provision intended to allow employees to diversify out of employer stock.

    Matching contributions

    President Bush's package - the foundation for this legislation - had proposed letting workers sell the employers' matching contribution in employer stock after three years of service. But the bill contains a rolling three-year periodprovision, the brainchild of the ERISA Industry Committee, which represents many of the nation's largest plan sponsors, and opposes attempts to let participants freely sell their holdings of employer stock.

    Senior Bush administration officials in the pension office of the Labor Department have privately criticized this provision.

    Weakens current provision

    Finally, critics say the legislation weakens a provision intended to clarify current law that would hold employers accountable for participants' investments during "blackout" periods when they can't shift assets among options That is in response to the Enron situation, where Enron stock was tanking and the 401(k) plan was frozen.

    "It's a sham bill that would not have prevented what happened at Enron, and (it) puts workers' retirement security at further risk," said Damon Silvers, associate general counsel at the AFL-CIO in Washington.

    Others say the rolling three-year holding provision would result in an administrative nightmare and confuse participants, creating inertia over their holdings of employer stock.

    Employer groups rebutted the charges and said Enron collapsed because of fraud, not because employees were overweighted in company stock.

    In fact, there is nothing to suggest that professional financial advisers would have told participants to dump their holdings of Enron once the stock plummeted because several investment analysts considered it to be a bargain at those levels, said Dallas Salisbury, president of the Washington-based Employee Benefit Research Institute.

    "Many professional investment advisers bought an awful lot of Enron shares after the blackout period had passed because there were people who believed buying Enron at $5 or $6 a share was a good deal, so the core issue is not choice but honesty of accounting and management," he said.

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