The Enron Corp. collapse has changed the way many corporations run their 401(k) plans.
Among the most common changes:
* ChevronTexaco Corp., Lucent Technologies Inc. and Mellon Financial Corp. are easing restrictions on the sale of company stock.
* J.C. Penney Co. Inc., ChevronTexaco and Lucent are broadening investment menus.
* 24 Hour Fitness Inc., Wickes Inc. and Phillips-Van Heusen Corp. are shortening the blackout periods when switching record keepers, while ChevronTexaco is allowing participants to trade out of company stock and into money market funds during the blackout period.
About two-thirds of the $7.5 billion in ChevronTexaco's defined contribution plans is in company stock. Beginning July 1, San Francisco-based ChevronTexaco no longer will restrict participants' sale of company stock.
During the two-week blackout period that began April 1, when the merged plan switched to The Vanguard Group from CitiStreet for record keeping, ChevronTexaco participants were allowed to send one request to Vanguard to shift assets from company stock to money market funds.
Lucent, Murray Hill, N.J., on May 15 switched to a cash match from a stock match in its union plan, and allowed all union employees to switch out of company stock into any of the plan's 16 options. Previously, participants couldn't sell their company-match stock until age 55. The company match for management employees already was in cash, said spokesman Frank Briamonte.
The company in 2001 also opened its menu of investment options, expanding to 16 investment options from 13 and maintained communication to calm participants' post-Enron jitters, he said.
Relaxing the rules
On July 1, participants who hold company stock in Mellon Financial's $1.1 billion 401(k) plan will be able to buy and sell it on any day; previously sales were blocked at the start and end of a quarter. Pittsburgh-based Mellon also is abolishing a rule that prohibited participants from selling stock from matching contributions until age 55; the new holding period is three years.
Martin G. McGuinn, Mellon chairman and chief executive officer, "was not interested in waiting" for Congress to act,said Robert M. Perego, manager of corporate employee benefits.
"We have committees that look at plan design on a regular basis and wanted to loosen restrictions on Mellon stock. In conjunction with Enron, our employees raised questions because we're a major investment manager," Mr. Perego said.
"We do believe very heavily that employees should own a piece of the company and share in its fortune," Mr. Perego said. That's why Mellon will continue to match in company stock, he said. Last week, Mellon announced a new stock option grant to employees. Mellon also has a stock purchase plan.
To encourage diversification, J.C. Penney, Plano, Texas, broadened the investment options in its $3.2 billion plan to 23 from five and hired Financial Engines to offer online investment advice, said John Walton, head of Penney's benefits program.
Although the matching contribution is in company stock, employees can diversify out of Penney common stock immediately, he said. Some 26% of plan assets are in Penney common or preferred stock; down from 30% before plan changes were made in February.
Penney executives broadened the investment lineup to encourage participants to diversify out of two popular investment options: company stock and an interest income fund that had held a large percentage of the assets, Mr. Walton said.
24 Hour Fitness, Pleasanton, Calif., switched its $13 million 401(k) plan to semibundled provider MassMutual Retirement Services with only a 24-hour blackout period, said Bridget Hinchcliffe, director of benefits.
When the $75 million 401(k) plan at Phillips-Van Heusen, New York, switched to semibundled provider Strong Retirement Plan Services Inc. from record keeper Mellon HR Solutions, company executives wanted virtually no blackout period, said Mary Kazan, director of corporate benefits. The conversion occurred over the Easter holiday weekend, with the plan going live April 1.
"I had experience with a conversion during `Black Monday' in October of 1987. Then, with recent happenings surrounding Enron, it just confirmed in my mind that the shortest possible blackout period was the right thing to do," she said.
On June 3, Wickes, Vernon Hills, Ill., moved its $90 million 401(k) plan to MassMutual Retirement Services from Bank of New York with a two-week blackout period, said Tim White, director of human resources.
Because of Enron (when participants were unable to sell their plummeting company stock because of a blackout during a record-keeping switch), how quickly candidates could make a quick conversion played a part in the final review, Mr. White said. Company stock was not a problem; the match is in cash.
Sally Welborn, who runs San Francisco-based Wells Fargo & Co.'s $6.6 billion 401(k) plan and $2.5 billion cash balance plan, said she believes that most retirement plan officials are reviewing their funds "to make sure what they are doing is right." One thing officials at Wells Fargo are studying: the match in company stock, which participants must hold until age 55.
Not everyone is making Enron-related changes. At Coca-Cola Co., Atlanta, where 76% of the $1.4 billion 401(k) plan is in company stock, there are no plans to loosen the requirement that participants hold stock obtained through a company match until age 53, said Dwight Williams, media relations manager.