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The Employee Ownership Update

Corey Rosen

January 30, 2002

(Corey Rosen)

Update on Enron and Employee Ownership

The fallout from Enron continues to be the most important development in the employee ownership world. It appears a consensus is emerging on a least a few points:

There is not yet any agreement, however, on whether there should be specific limits on employer stock in retirement plans, on whether rules for ESOPs should be tightened, or, as in the Boxer bill, there should be lower incentives for contributing employer stock to 401(k) plans. Industry groups, the Wall Street Journal, and some others have urged that reforms for employee ownership proceed cautiously. Several recent developments are worth noting:


Some changes appear certain; both parties feel compelled to "do something." Whether these changes will go beyond the consensus areas outlined above, however, is much less clear. Greater diversification opportunities in 401(k) plans have a reasonably good chance; actual limits on employer stock may be more difficult to enact. Reducing incentives for employer stock matches appears even less probable. There has not been much public discussion about ESOPs per se. The Boxer bill would require diversification in ESOPs to start at 35 with five years' of service, not 55, as under current law, but has no other provisions specific to ESOPs. Other proposals do not mention ESOPs per se. A strong case can be made, however, that ESOPs, at least in closely held companies, should not have their rules changed, because these companies are vastly more likely to provide diversified retirement plans than comparable companies without ESOPs. In other words, they already separately provide for employee retirement.

Author biography and other columns in this series

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