AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K) JAMES R. GRIFFIN JACKSON WALKER L.L.P....
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Transcript of AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K) JAMES R. GRIFFIN JACKSON WALKER L.L.P....
![Page 1: AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K) JAMES R. GRIFFIN JACKSON WALKER L.L.P. 214-953-5827 Jgriffin@jw.com E. STEVE BOLDEN, II JACKSON.](https://reader036.fdocuments.in/reader036/viewer/2022081518/551aad935503466b3a8b5ebf/html5/thumbnails/1.jpg)
AFTERMATH OF ENRON: WHAT TO DO WITH THE COMPANY’S 401 (K)
JAMES R. GRIFFIN
JACKSON WALKER L.L.P.
214-953-5827
E. STEVE BOLDEN, II
JACKSON WALKER L.L.P.
214-953-6093
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THE 2001 SHARE PRICES
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
25-Jan
28-Sep
19-Oct
26-Oct
30-Oct
13-Nov
20-Nov
Now
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WHAT WENT WRONG
Shell Companies Sham Partnerships Elaborate Schemes To Hide Losses Culture of Deception
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WHO LOST
21,000 Active and Retired Workers $1.3 Billion $ 62,000 Per Person Tim Ramsey: $985,000 Roy Rinard: $472,000
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WHO WON
Cindy Olson VPHR $6.5 Million Ken Lay Chairman $101 Million Andrew Fastow CFO $30 Million Jeff Skilling President $67 Million
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OVERVIEW
Enron’s 401 (K) Fiduciary Duties The Enron 401 (K) Litigation The Government The Lessons
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ENRON’S 401 (K)
Summary of Plan Company Stock The Blackout
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PLAN DESIGN Eligible on 1st 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
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COMPANY STOCK
Mandatory Match Diversification at Age 50
Discretionary All others
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COMPANY STOCK INVESTMENTS
19 % of All Assets $ 380 Billion 39 % of Assets in 5,000 + Participant Plans
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OTHERS PLANS
Proctor and Gamble 94% Sherwin Williams 91% Abbott Laboratories 90% Pfizer 85% Coca – Cola 85% Texas Instruments 70% Enron 62%
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THE BLACKOUT
Reasons For Change Planning Communication Execution
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FIDUCIARY DUTIES
ERISA Framework Qualifications Investment Responsibilities
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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
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RELEVANCE OF FIDUCIARY RESPONSIBILITY
Employer Objectives and Cost Employee Satisfaction Personal Liability Contribution Class Action Co-Fiduciary Liability Criminal Liability
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INSURANCE
Fidelity Bond Fiduciary Insurance D&O Insurance Corporate Indemnification Agreements
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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
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EXAMPLES OF FIDUCIARIES
Trustee Plan Administrator Investment Advisor Plan Committee
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FIDUCIARY DISQUALIFICATIONS
Felony Conviction DOL Prohibition
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FIDUCIARY CANDIDATES
CEO CFO Human Resources General Counsel Other Employees
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FIDUCIARY DUTIES
Exclusive Benefit Prudent Man Diversification Compliance With Plan Documents Prohibited Transactions
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INVESTMENTS
Investment Policy Statement Reliance on Experts and Consideration of
Alternatives Monitoring Expenses
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PARTICIPANT DIRECTED INVESTMENTS
Meaningful Independent Investment Control Range of Investment Alternatives Frequency of Changes Adequate Information Education vs. Advice
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THE ENRON 401 (K) LITIGATION
Plaintiffs Defendants Arguments Defenses Remedies Outcome
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GOVERNMENT’S RESPONSE
Department of Labor President’s Proposal Other Legislative Proposals
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DEPARTMENT OF LABOR
R.E.A.C.T. Independent Fiduciary 1–866–275-7922
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PRESIDENT’S PROPOSAL
Blackouts Fiduciary Responsibilities Trading Restrictions 30 Day Notice
3 Year Diversification Expanded Disclosure Investment Advice
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OTHER LEGISLATIVE PROPOSALS
Caps Insurance ERISA
Punitive Damages Attorneys Fees Other Damages
Lower Deductions Joint Representation Plan Expenses Bounty Program
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THE LESSONS
Conduct Periodic Committee Meetings Keep Minutes Adopt Investment Policy Statement Review Investment Performance Purchase Fiduciary Insurance Consider Alternatives Evaluate Costs
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THE LESSONS(continued)
Educate and Communicate With Employees
Review 5500 Adopt Other Policies/Procedures as
Necessary, Including Claims QDROs Administrative Compliance Investment Education Loans
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James R. GriffinJACKSON WALKER L.L.P.901 Main Street, Suite 6000Dallas, Texas 75202Direct: 214-953-5827Fax: 214-953-5822Email: [email protected]
E. Steve Bolden, IIJACKSON WALKER L.L.P.
901 Main Street, Suite 6000Dallas, Texas 75202
Direct: 214-953-6093Fax: 214-953-5822
Email: [email protected]