AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K) JAMES R. GRIFFIN JACKSON WALKER L.L.P E. STEVE BOLDEN, II JACKSON WALKER L.L.P
THE 2001 SHARE PRICES
WHAT WENT WRONG Shell Companies Sham Partnerships Elaborate Schemes To Hide Losses Culture of Deception
WHO LOST 21,000 Active and Retired Workers $1.3 Billion $ 62,000 Per Person Tim Ramsey:$985,000 Roy Rinard:$472,000
WHO WON Cindy Olson VPHR$6.5 Million Ken LayChairman$101 Million Andrew FastowCFO$30 Million Jeff SkillingPresident$67 Million
OVERVIEW Enron’s 401 (K) Fiduciary Duties The Enron 401 (K) Litigation The Government The Lessons
ENRON’S 401 (K) Summary of Plan Company Stock The Blackout
PLAN DESIGN Eligible on 1 st Day of Month After Hire Contributions Before Tax After Tax Match Rollover Investments 20 Mutual Funds Self – Directed Brokerage Company Stock Full Vesting After 1 Year Loans, Withdrawals
COMPANY STOCK Mandatory Match Diversification at Age 50 Discretionary All others
COMPANY STOCK INVESTMENTS 19 % of All Assets $ 380 Billion 39 % of Assets in 5,000 + Participant Plans
OTHERS PLANS Proctor and Gamble94% Sherwin Williams91% Abbott Laboratories90% Pfizer85% Coca – Cola85% Texas Instruments70% Enron62%
THE BLACKOUT Reasons For Change Planning Communication Execution
FIDUCIARY DUTIES ERISA Framework Qualifications Investment Responsibilities
APPLICABLE LAWS Employee Retirement Income Security Act of 1974 (ERISA) Protection of Participant Rights Internal Revenue Code of 1986 (Code) Tax Determination Letter Ongoing Qualification State Laws Preemption
RELEVANCE OF FIDUCIARY RESPONSIBILITY Employer Objectives and Cost Employee Satisfaction Personal Liability Contribution Class Action Co-Fiduciary Liability Criminal Liability
INSURANCE Fidelity Bond Fiduciary Insurance D&O Insurance Corporate Indemnification Agreements
WHO IS A FIDUCIARY? Discretionary Authority or Discretionary Control Over the Management of the Plan Any Authority or Control Over the Management or Disposition of Plan Assets Discretionary Authority or Discretionary Responsibility in the Administration of the Plan Renders Investment Advice for a Fee or Has Any Authority to Do So With Respect to Plan Assets
EXAMPLES OF FIDUCIARIES Trustee Plan Administrator Investment Advisor Plan Committee
FIDUCIARY DISQUALIFICATIONS Felony Conviction DOL Prohibition
FIDUCIARY CANDIDATES CEO CFO Human Resources General Counsel Other Employees
FIDUCIARY DUTIES Exclusive Benefit Prudent Man Diversification Compliance With Plan Documents Prohibited Transactions
INVESTMENTS Investment Policy Statement Reliance on Experts and Consideration of Alternatives Monitoring Expenses
PARTICIPANT DIRECTED INVESTMENTS Meaningful Independent Investment Control Range of Investment Alternatives Frequency of Changes Adequate Information Education vs. Advice
THE ENRON 401 (K) LITIGATION Plaintiffs Defendants Arguments Defenses Remedies Outcome
GOVERNMENT’S RESPONSE Department of Labor President’s Proposal Other Legislative Proposals
DEPARTMENT OF LABOR R.E.A.C.T. Independent Fiduciary 1–866–
PRESIDENT’S PROPOSAL Blackouts Fiduciary Responsibilities Trading Restrictions 30 Day Notice 3 Year Diversification Expanded Disclosure Investment Advice
OTHER LEGISLATIVE PROPOSALS Caps Insurance ERISA Punitive Damages Attorneys Fees Other Damages Lower Deductions Joint Representation Plan Expenses Bounty Program
THE LESSONS Conduct Periodic Committee Meetings Keep Minutes Adopt Investment Policy Statement Review Investment Performance Purchase Fiduciary Insurance Consider Alternatives Evaluate Costs
THE LESSONS(continued) Educate and Communicate With Employees Review 5500 Adopt Other Policies/Procedures as Necessary, Including Claims QDROs Administrative Compliance Investment Education Loans
James R. Griffin JACKSON WALKER L.L.P. 901 Main Street, Suite 6000 Dallas, Texas Direct: Fax: E. Steve Bolden, II JACKSON WALKER L.L.P. 901 Main Street, Suite 6000 Dallas, Texas Direct: Fax: