WASHINGTON - When he testifies before Congress tomorrow, Kenneth L. Lay, Enron Corp.'s former chairman, will likely face sharp questions about how he and other top executives cashed in on their company stock even while employees had to watch helplessly as their nest eggs evaporated.
His testimony comes as President Bush, who for years benefited from Lay's campaign donations, has joined critics in denouncing Enron's financial practices and in offering a plan to protect workers.
At the White House and in Congress, the Enron debacle has touched off a torrent of suggested reforms intended to protect retirement savings, and they carry one classic piece of investment advice: diversify.
Bush wants to give employees greater flexibility to reduce the amount of company stock in their 401(k) retirement accounts. Some Democrats would go so far as to require workers to limit the company stock in their accounts.
"My plan," Bush said last week, "will strengthen workers' ability to manage their own retirement funds by giving them more freedom to diversify."
The Bush plan also addresses perhaps the central point of outrage in the Enron collapse: that employees were barred from selling their company stock during a "blackout" period even while top managers were allowed to cash their shares before Enron's bankruptcy made the stock all but worthless.
The rush to enact reforms and the hearings being held by a dozen committees in Congress have been driven by the loss of billions of dollars to Enron's workers and shareholders.
"Employees who have worked hard and saved all their lives should not have to risk losing everything if their company fails," Bush said yesterday in his weekly radio address.
Bush would let employees sell company stock that employers contribute to retirement accounts after three years. Enron did not let employees do so until they reached age 50.
The president would also require that employees be given 30 days' notice if access to their 401(k) accounts is about to be blocked for technical changes - as in Enron's case. And he would apply to top executives the same restrictions on selling company stock that cover other employees.
Workers should have "the benefit of solid, independent investment advice," he said yesterday. "Right now, the law deters companies from providing employees with sound advice, such as information about the benefits of diversification."
And, he said, "employers should be required to provide regular information to their workers about the current value of their accounts and their right to sell and diversify. Right now, employers need to give an accounting to workers only once a year. We're going to tell them they must do so every three months."
Among the most serious problems exposed by the Enron collapse is that many workers voluntarily invest far more of their retirement savings in their company stock than is considered wise. By failing to diversify their investments, they put their retirement money at risk.
"Most people are holding 401(k) plans that are way too heavily concentrated in company stock," said David Certner of AARP, the lobby of retirees and those nearing retirement. "Everyone agrees the answer to that is diversification. The question is how to achieve that."
Some form of legislation is considered almost certain to pass as politicians across the spectrum scramble to respond to the events in which thousands of Enron employees lost their life savings.
But with businesses large and small complaining that they would be unfairly punished for Enron's misdeeds, even modest changes in retirement savings and pension laws are likely to provoke a battle.
"Let's not rush to judgment and arbitrarily impose broad new regulations and rules on retirement plans in reaction to what happened at Enron," said Dorothy Coleman of the National Association of Manufacturers, part of a coalition of business groups formed to resist changes in the pension system.
"Our voluntary retirement and investment systems work quite well on the whole," she said, "and we must be very wary of making any hasty moves that will stifle the growth potential of these wealth-enhancing plans."
$2 trillion in assets
About 42 million American workers - nearly half of all full-time employees - own 401(k) accounts, with a total of $2 trillion in assets, according to the Employee Benefits Research Institute.
In many cases, these savings plans - which typically include matching contributions by employers - have replaced traditional employer-paid pensions, which guarantee workers a retirement payout based on salary and years of service.
Some employers make their matching contributions to 401(k) accounts in the form of company stock rather than cash. Sometimes, employees will buy still more company stock as part of their contributions to their accounts.
As a result, Certner said, workers at some companies are holding as much as 90 percent of their retirement savings in their company's stock.
Even so, the business community has urged Congress to make no changes in the laws dealing with retirement savings and pensions until all the facts of the Enron case are uncovered by the criminal and congressional investigations under way.
"This may not be a pension issue," said Mark Ugoretz, president of the ERISA Industries Committee, a trade association representing large companies. "At the end of the day, we may find that [if] everybody along the way had done their job properly, this wouldn't have happened."
Employers say they envision burdensome new rules and the potential loss of tax benefits that accrue from providing employee retirement benefits. They express fear that the changes would drive up the cost of retirement benefits and might lead some companies to scale back their 401(k) plans - or even cancel them altogether.
"This is a zero-sum game," said Kathleen Havey of the U.S. Chamber of Commerce. "If you reduce the incentives to employers, the benefits they are willing to offer are going to be affected."
With his close financial ties to Houston-based Enron, Bush was eager to distance himself from the company's alleged misdeeds by taking quick steps designed to protect workers from a similar debacle in the future.
Among its other elements, the president's plan would make employers legally responsible for protecting workers' retirement accounts during a blackout period.
Bush's proposals criticized
But many Democrats say his proposed reforms are too modest. Sens. Barbara Boxer of California and Jon Corzine of New Jersey want to limit to 20 percent the proportion of a 401(k) account that can be held in company stock.
"We have learned from Enron that the reality is workers don't really have a choice about investing in company stock; they are under great pressure to do so," said David Sandretti, a spokesman for Boxer. "Diversification is required in [traditional] pension plans; it ought to be in 401(k) plans, too."
An alternative proposal that could form the outlines of a compromise is being offered by Reps. Benjamin L. Cardin, a Baltimore Democrat, and Rob Portman, an Ohio Republican who is a close Bush ally. The bipartisan duo surmounted long odds last year to enact an increase in tax incentives for retirement and pension savings.
Their approach would allow workers to sell their company stock more quickly than Bush's plan would. It would apply to stock held in Employee Stock Ownership Plans, known as ESOPs, as well as in 401(k) accounts.
The Cardin-Portman bill would not limit the proportion of company stock that a worker could hold in a retirement plan. Nor would it apply to ESOPs that are offered by small- and medium-size companies, in which Cardin says employees own significant amounts of shares of the company.
"We really think this has a chance to become law and will do something to help people," Cardin said. "We want to make these retirement plans safer investments. We don't want to kill them."