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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.

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Presentation on theme: "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."— Presentation transcript:

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 WALKER L.L.P. 214-953-6093 sbolden@jw.com

2 THE 2001 SHARE PRICES

3 WHAT WENT WRONG  Shell Companies  Sham Partnerships  Elaborate Schemes To Hide Losses  Culture of Deception

4 WHO LOST  21,000 Active and Retired Workers  $1.3 Billion  $ 62,000 Per Person  Tim Ramsey:$985,000  Roy Rinard:$472,000

5 WHO WON  Cindy Olson VPHR$6.5 Million  Ken LayChairman$101 Million  Andrew FastowCFO$30 Million  Jeff SkillingPresident$67 Million

6 OVERVIEW  Enron’s 401 (K)  Fiduciary Duties  The Enron 401 (K) Litigation  The Government  The Lessons

7 ENRON’S 401 (K)  Summary of Plan  Company Stock  The Blackout

8 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

9 COMPANY STOCK  Mandatory  Match  Diversification at Age 50  Discretionary  All others

10 COMPANY STOCK INVESTMENTS  19 % of All Assets  $ 380 Billion  39 % of Assets in 5,000 + Participant Plans

11 OTHERS PLANS  Proctor and Gamble94%  Sherwin Williams91%  Abbott Laboratories90%  Pfizer85%  Coca – Cola85%  Texas Instruments70%  Enron62%

12 THE BLACKOUT  Reasons For Change  Planning  Communication  Execution

13 FIDUCIARY DUTIES  ERISA Framework  Qualifications  Investment Responsibilities

14 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

15 RELEVANCE OF FIDUCIARY RESPONSIBILITY  Employer Objectives and Cost  Employee Satisfaction  Personal Liability  Contribution  Class Action  Co-Fiduciary Liability  Criminal Liability

16 INSURANCE  Fidelity Bond  Fiduciary Insurance  D&O Insurance  Corporate Indemnification Agreements

17 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

18 EXAMPLES OF FIDUCIARIES  Trustee  Plan Administrator  Investment Advisor  Plan Committee

19 FIDUCIARY DISQUALIFICATIONS  Felony Conviction  DOL Prohibition

20 FIDUCIARY CANDIDATES  CEO  CFO  Human Resources  General Counsel  Other Employees

21 FIDUCIARY DUTIES  Exclusive Benefit  Prudent Man  Diversification  Compliance With Plan Documents  Prohibited Transactions

22 INVESTMENTS  Investment Policy Statement  Reliance on Experts and Consideration of Alternatives  Monitoring  Expenses

23 PARTICIPANT DIRECTED INVESTMENTS  Meaningful Independent Investment Control  Range of Investment Alternatives  Frequency of Changes  Adequate Information  Education vs. Advice

24 THE ENRON 401 (K) LITIGATION  Plaintiffs  Defendants  Arguments  Defenses  Remedies  Outcome

25 GOVERNMENT’S RESPONSE  Department of Labor  President’s Proposal  Other Legislative Proposals

26 DEPARTMENT OF LABOR  R.E.A.C.T.  Independent Fiduciary  1–866–275-7922

27 PRESIDENT’S PROPOSAL  Blackouts  Fiduciary Responsibilities  Trading Restrictions  30 Day Notice  3 Year Diversification  Expanded Disclosure  Investment Advice

28 OTHER LEGISLATIVE PROPOSALS  Caps  Insurance  ERISA  Punitive Damages  Attorneys Fees  Other Damages  Lower Deductions  Joint Representation  Plan Expenses  Bounty Program

29 THE LESSONS  Conduct Periodic Committee Meetings  Keep Minutes  Adopt Investment Policy Statement  Review Investment Performance  Purchase Fiduciary Insurance  Consider Alternatives  Evaluate Costs

30 THE LESSONS(continued)  Educate and Communicate With Employees  Review 5500  Adopt Other Policies/Procedures as Necessary, Including  Claims  QDROs  Administrative Compliance  Investment Education  Loans

31 James R. Griffin JACKSON WALKER L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Direct: 214-953-5827 Fax: 214-953-5822 Email: jgriffin@jw.com E. Steve Bolden, II JACKSON WALKER L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Direct: 214-953-6093 Fax: 214-953-5822 Email: sbolden@jw.com


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