401(k) reform: Don't hold your breath
A new law might not take effect till 2003 -- some changes could take even longer.
March 21, 2002: 4:26 PM EST
By Martine Costello, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The saber-rattling about Enron and pension reform shows no signs of dying down on Capitol Hill, and lawmakers are poring over at least 17 bills to overhaul the 401(k) system.

But as the debate drags on -- and on -- two things are clear.

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* First, it's unlikely changes will take effect this year.

* Second, some aspects of reform -- such as changes in how fast you can sell company stock in your 401(k) -- will probably take a few years longer.

Enron kindles flames for a new law

When Enron unraveled into bankruptcy last year, the company's 401(k) came unglued as well. The plan, heavy with company stock, lost $1 billion in value. All of a sudden, critics wanted change.

The wish list: Workers should get the full story on how the company stock is doing. They should be able to sell the stock whenever they want. They shouldn't be held hostage by "lockdowns," when a 401(k) changes administrators and blocks exchanges. And, a company should be held accountable if it prevents exchanges during lockdowns and all hell breaks loose.

Two House bills and one Senate bill are getting the most attention in Washington.

All three bills would require quarterly investing statements outlining risks and 30-day notice for lockdowns.

Here are other highlights of the three bills:

1. A bipartisan plan by Rep. Rob Portman, R-Ohio, and Rep. Ben Cardin, D-Md., would allow workers with three years of service to sell their company stock over a period of five years in 20-percent increments.

2. Another House plan, by Rep. John Boehner, R-Ohio, and Rep. Sam Johnson, R-Texas, would allow companies to choose a divesting plan. In one scenario, workers could sell all shares after three years. Or, workers would use a rolling schedule over time after three years. It also would make it illegal for company owners to sell shares during a shutdown. Companies could be held responsible for 401(k) losses in certain cases.

3. Sen. Edward M. Kennedy, D-Mass., comes the closest of the three bills to suggesting a limit on company stock without putting a percentage on it. He proposes that companies can make matching contributions in stock, but then employees shouldn't be able to buy it themselves (or vice versa.) He would hold companies responsible across the board for losses during lockdowns.

Some reform may take years

Pension reform is a process that can take months, if not years. A lawmaker proposes a bill, then it goes to various committees for debate and review. Then it goes to a full committee vote for "mark ups" -- last-minute changes -- before it heads to a full House or Senate vote. If there are competing bills in the House and Senate, another round of meetings and compromises will result.

Some bills die in committee, while a few get fast-tracked. After that, it needs President Bush's signature to become a law.

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Kevin Smith, a spokesman for the House Education & Workforce Committee, which approved the Boehner bill Wednesday, said its likely the two House bills will be combined before they go to a full vote by the House. Boehner's advice bill, approved separately last year, will also be a part of it. Boehner is chairman of the panel. (Click here for more on 401(k) advice.) But the Senate might have a tougher time reaching a compromise, Smith said.

A situation like the Enron tragedy is a galvanizing event that often inspires a faster change, Smith said. Still, he acknowledged the wheels might not always move so quickly.

"We're going to do our job on the House side, but whether the bill becomes a law will depend on largely whether the Senate can come to some compromise," Smith said. "There's a reasonable chance we can get something done, but this is an election year and we don't have that much legislative time left this year."

On the other side of the aisle, Kennedy's bill on Thursday won narrow approval by a partisan 11-10 vote in the Senate Health, Education, Labor and Pensions Committee. But Jim Manley, spokesman for the panel, acknowledged it will be a battle to sway Republicans to support it. Kennedy is chairman of that committee.

"Sen. Kennedy repeatedly has said something needs to be done -- if Republicans want to be obstructionists, so be it," Manley said. "It will be a fight on the floor."

Some groups representing the interests of big companies have their doubts there will be a new law this year -- it's more likely to be 2003, and that would be at the earliest.

"The legislative process by nature is slow and deliberative," said David Wray, president of the 401(k) council. It took five years for proposed changes in savings limits for 401(k)s and IRAs to go from a proposed bill to law in 2001, he said.

A pension reform bill may also wind up with provisions attached for other Enron-related reform or accounting changes, said Jim Klein, president of the American Benefits Council, a lobbying group representing big companies.

Most people agree if a new law allows workers to sell their company stock, it's not likely to take effect immediately. Rather, it would likely be phased in over several years. Another option is to have the rules apply to new employees and phase in the changes for other staff.

"You can't make it effective the day the president signs it or you'd have people dumping stocks," Klein said.  Top of page