Members keep eye on 401(k) diversity, long term, as heat intensifies on Enron

<p>HOUSTON – Amid congressional hearings involving Enron Corp. executives and Pres. George W. Bush’s stance to take a more microscopic view at 401(k)s, financial advisers assisting credit union members with retirement planning aren’t being deluged with concerns over investing in large company stocks. At CUNA Mutual Group, which oversees 2,600 401(k) plans and $2 billion in pension assets where there is no access to individual stocks through its 401(k) plans, one of the lessons with Enron is the need for employees to diversify their investments, said Tom Eckert, senior vice president of pension operations. “The use of investment options with diversified holdings mitigates the loss from the failure of any one company,” Eckert said. “Unfortunately, Enron is part of a larger trend with the recession and 9/11, all pointing to people wanting to move their money.” In the Houston area, many credit unions like most of the city have been watching the latest Congressional hearings but not with the intensity that the outcome will affect their respective day-to-day operations. At Shell Employees Federal Credit Union which serves 27,000 members and has $200 million in assets, business is as usual through its third-party contract, Lincoln Financial, Inc., said Angela McCatheran, president/CEO. What would seem like reaction to Enron’s non-existent 401(k) funds is actually an everyday-trading occurrence, she added. “Yes, people have chosen a different alternative than Shell’s stock, but that’s business as usual for us,” McCatheran said. “Otherwise, there have been no ripple effects.” Shell Oil Co. is the credit union’s main sponsor and the CU also serves 51 select employee groups in the oil industry. Experts say the advantages of investing in one’s company stock include better matching, tax advantages, an increase in the 401(k) cap and lower prices. But many generally advise that putting all eggs in one basket may cause an employee to lose a greater percentage of the plan’s value and the tax benefits that come with diversification according to 401k.com. One issue coming under Congressional fire is the transition period or “blackout” that occurs when a company changes its retirement plan administrator. Enron claims it notified all employees in a letter on Oct. 4 that a transition period would begin on October 29. Several reminder emails were also sent alerting employees that would not be able to change investments in their 401(k) accounts between Oct. 29 and Nov. 12. “It’s an area that’s getting a closer look because a typical blackout period lasts about 30 days,” Eckert said. Dale Roberts, president/CEO of Communicators Federal Credit Union in Houston can see the Enron buildings a few blocks away from his office window. While Communicators’ MEMBERS Financial Services representative could not comment on any general investment activity, members here are generally conducting business as usual, Roberts said. Only two Southwestern Bell employees asked if their Enron checks would be honored. “We’ve known these particular employees for years, so we cashed them,” said Roberts of Communicators, which has $165 million in assets and 38,000 members. Meanwhile, more than 60 employee industry groups have urged Congress to tread with caution before making any changes to current retirement policy and regulation. One of the groups, the Profit Sharing Council/401(k) Council of America, has been in the forefront of promoting a “system that has, for more than 100 years proved its worth,” said David Wray, president of the council. “Let’s get past the emotion,” Wray told Credit Union Times. “A lot of people lost a lot of money in a terrible situation, but the question is what needs to be put in place so that nothing like this happens again. We need to really look beyond employee ownership in a company and look at what happened at Enron.” Wray added that the bigger Enron picture suggests that there needs to be more emphasis on education. “Some (Enron) individuals who were approaching retirement should have been more diversified and that’s an education issue,” Wray said. Eckert agreed that diversity across any retirement fund is always the main focus coupled with an eye on the long term and resisting the temptation of getting caught up in the events of the day. “There are pension laws that limit investment in company stock to 10%, but there currently aren’t any limits on 401(k) plans,” Eckert said. “That issue is also coming under scrutiny with some arguing there should be higher limits on the amounts allowed to invest by an employee.” Roughly 82.5% of eligible workers were contributing an average of 5.4% of their pay to their 401(k), according to a CUES survey and despite Enron’s troubles, that’s higher than it has ever been and industry experts predict the trend will continue. “If I work for a company and I invest in that company, I should not be concerned,” Wray said. “If you look historically, where this is company stock, there is a high degree of company success. Enron is not a normal situation.” -</p> <p>[email protected]</p>