[PEN-L:29525] Re: Rising stock market redistributes wealth?

[Yoshie Furuhashi <furuhashi.1@xxxxxxx>]

> Redistribution might happen if a company pushes up its stock prices
> by pushing its employees or their pension funds to buy the stock,
> while the CEO and other insiders are selling stock.
>
> does this make sense?
>
> Jim

*****   Damien Cave, "401 Reasons to Love Enron," _Salon.com_

Jan. 17, 2002 | When Enron filed for bankruptcy in December,
thousands of employees lost not just their jobs but also the money
set aside for their retirement. Utility workers, midlevel managers
and others who invested in Enron stock via the energy trader's 401K
savings plan lost an estimated $1.3 billion.

In all, "about 18,000 to 20,000 employees lost money because their
retirement accounts were invested in Enron stock," says Karl Barth,
an attorney for Hagens and Berman, a Seattle law firm that's suing
the energy trader on behalf of the employees....

The plight of Enron's employees, in contrast to widely reported
stories of top Enron executives cashing out for millions of dollars
over the past few years, has made Enron's 401K plan a hot political
topic....

The timing of Enron's 401K lockdown raises a host of questions about
Enron's intentions, but the larger story of how the company's 401K
plan was set up is far from unique. The days of guaranteed, or
"defined" benefits -- you get out what you pay in -- were over long
before Enron collapsed. Today, so-called defined-contribution plans,
in which the payoff depends on how your investments play out, can be
found at nearly every sizable company.

In large public companies, it's also common for employees to have the
vast majority of their money tied up in their employer's stock.
Enron's employees had about 60 percent of their assets in Enron
stock, but that's far from the extreme. Procter & Gamble's workers
keep about 94 percent of their 401K money in P&G stock, according to
a recent survey. Employees of the Sherwin-Williams paint company keep
90 percent of their plan's assets in company stock; at Coca-Cola,
more than 81 percent of 401K assets sit in the soft-drink company's
paper.

As any financial planner will tell you, undiversified investment is
risky, but for many Enron employees -- like the workers at Lucent,
Ikon Office Solutions and other companies that are being sued by
their 401K holders -- the danger wasn't recognized until it was too
late....

..."In the old days, you knew what you were going to earn at the end
of your life," says Ernest Englander, professor of business and
public policy at George Washington University. "But in the '80s and
'90s, we moved to defined contributions, not benefits."

Along the way, companies started exerting more influence over the
retirement investments. Specifically, "Many companies set up rules so
you had to put the money into your own company," Englander says. CEOs
wanted people to feel like they had a stake in the company, but risks
came with connection.

They also had another, less honorable motivation. Making
contributions in stock avoided expensive cash payments that could
detract from the company's bottom line ["however, the company still
enjoys the tax advantage of being able to deduct as a business
expense the then-current value of the stock,"
<http://www.enronsuit.com/stock.html>].

"Not only were you not diversified, but there were also restrictions
on when you could take that money out," Englander says. "It made you
be fully invested in your own company: Not only is your income based
on the company, but so too is your retirement."...

<http://www.salon.com/tech/feature/2002/01/17/401k/print.html>   *****

*****    Average number of funds in workers' 401(k) plans: 3.6.
29% of workers have at least three-quarters of their 401(k) savings
in company stock.
15% of workers have all of their 401(k) savings in company stock.
20% of workers age 60 or older have all of their savings in company stock.
Source: Hewitt Associates
<http://www.usatoday.com/money/perfi/columnist/block.htm>   *****
--
Yoshie

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