401(k) Plans Sink With Enron

By: Jeff Manning

Enron, the once-mighty energy giant, took millions of dollars of its employees' retirement savings down with it as it collapsed with shocking swiftness during the past month.

Enron stock is a staple of many of its 21,000 employees' 401(k) accounts. Because of a decision the company made months ago, employees and retirees could only watch in horror as the stock price plunged more than 70 percent after Oct. 16, when Enron announced a $618 million third-quarter loss.

The loss stemmed largely from write-offs on investments that led to the dismissal of the company's chief financial officer and now are being investigated by the Securities and Exchange Commission.

On Oct. 17, Houston-based Enron "locked down" the 401(k) accounts. The lockdown made it impossible for employees, including about 2,700 at Portland General Electric, to roll their Enron stock into a different investment or make any other changes in their accounts. The freeze, which lasted until Wednesday, coincided with Enron's sudden downfall.

Enron stock, which reached a high of $84.88 in December and closed at $33.84 on Oct. 16, fell below $9 during the lockdown. It rallied only slightly after Dynegy Inc., also based in Houston, announced Nov. 9 that it had agreed to buy Enron. The shares closed Thursday at $9.48, down 52 cents.

Enron's disintegration and the disastrously timed account freeze have infuriated some employees, who feel the company hyped its stock to the very end. PGE, which Enron is selling to Northwest Natural Gas, has hired anger management counselors and investment experts to help workers.

"We couldn't get out, we just sat there and watched our nest eggs go down to nothing", said Roy Rinard, a longtime PGE lineman from Boring with all of his 401(k) plan in Enron stock. Rinard, 54, said his account has dropped in value from more than $472,000 a year ago to $238,000 at the time of the freeze to about $70,000 now.

In addition to owning PGE, Enron itself has a handful of employees in Portland.

Peggy Fowler, PGE chief executive officer, said the lockdown was an unfortunate coincidence, implemented in order to allow a change in fund administrators. She acknowledged that "the timing couldn't have been worse".

Some employees are furious, noting that Enron executives and directors sold off more than $100 million worth of company stock in recent months.

"I just feel like I've been stolen from and lied to," said Alan Kaseweter, 43, a special tester for PGE's service department who had almost all of his 401(k) invested in Enron stock. Kaseweter, of Redlands, said his account has dwindled from $348,000 a year ago to $115,500 at the time of the freeze to $36,000.

Enron and PGE employees have no choice but to accept Enron stock as the company's matching contribution to their 401(k) accounts. Only employees over 50 and retirees are allowed to roll it over to another investment.

PGE's Fowler admitted that it will take a long time for some employees to get over the financial and emotional shock. Fowler, too, took a considerable hit. Her 35,000 shares that were worth $2.94 million last December are now worth about $350,000.

"We refer to our retirement program as a three-legged stool - Social Security, the company pension and the 401(k)", Fowler said. "One of the legs has been cut off."

Some employees, who said they felt encouraged by Enron management's bullishness, put 100 percent of their own 401(k) contributions into Enron stock.

It seemed like a good bet for several years. Enron's stock climbed 475 percent between 1995 and Dec. 31, 2000. Jeffrey Skilling, the now-departed Enron CEO, told analysts early this year that the company's stock should be at $120 a share.

Enron purchased PGE in 1997. The natural gas company was reinventing itself into a cutting-edge energy trading company. It took staple products such as natural gas and electricity and attempted to trade them like pork bellies or orange juice.

In more recent years, Enron has attempted to trade increasingly exotic products - wine futures, communications bandwidth, even derivatives based on the weather.

Fortune magazine recognized Enron as the most admired corporation in the country four years running. Kenneth Lay, Enron chairman and CEO, was mentioned as possible Secretary of Energy, due in no small part to his relationship with the Bush family.

Enron walked with a good deal of Texas swagger. Employees tell of how the company's motto evolved from "The World's Greatest Energy Company" to simply "The World's Greatest Company".

Rumors of trouble began in the spring. The company's stock price, which had risen in 2000 even as the broader market began to weaken, sank. Skilling unexpectedly resigned in August, six months after he was promoted. The stock sank some more.

In October, the company announced the quarterly loss and write-offs. The bottom fell out.

In swift succession, reports surfaced about certain partnerships founded by Enron Chief Financial Officer Andrew Fastow that had done business with Enron. The partnerships borrowed money on Enron's behalf, which allowed Enron to keep the debt off its books.

Fastow left the company. The U.S. Securities and Exchange Commission opened an investigation.

On Nov. 8, Enron said it was restating earnings for the past five years, in effect admitting that it had inflated profits.

During these same chaotic weeks, Enron and PGE had frozen employees' 401(k) accounts. Enron had decided in July that it would dump Northern Trust as the fund's administrator in favor of Hewitt Associates, a move that would require about a month.

Fowler said PGE gave its employees plenty of notice. The company supplied a copy of a Sept. 27 memo to all employees warning them of the impending lockdown.

Fowler attributed the timing of the freeze to bad luck. Some of her employees aren't buying it. There had to be some recognition in Houston, employees argue, that the Oct. 16 earnings report contained a bombshell. Yet, Enron went ahead and froze its employees' accounts the next day anyway.

"If everybody in that 401(k) had sold out at $37, the company's stock would have collapsed", said Gary Kemper of Banks, a PGE maintenance foreman. "I don't believe it was a coincidence at all."

Kemper's 9,000 shares of Enron went from $756,000 at last year's high to $314,000 when the freeze was implemented. By the time the freeze was lifted four weeks later, his stock was worth $87,750.

Enron directors and executives furiously dumped stock through much of the past 12 months, selling more than $136 million worth in all. That fact is prominently mentioned in the many shareholder lawsuits filed against the company in recent weeks.

Investors have also filed five lawsuits against Enron's executives and directors. Among those directors is Kenneth L. Harrison, the former PGE chief executive.

In light of recent events, Fowler said, employees should keep their financial losses in perspective. "You have to be philosophical about it", she said.