Eschaton

Watch out Kenny Boy.

In an action that could prompt companies to beef up oversight of 401(k) plans, the federal government issued a court brief this month that sides with Enron workers. It said former chief executive officer Ken Lay and other top executives could be personally liable for millions of dollars in retirement plan losses.

The Department of Labor document is significant because it spells out the agency's position on an employer's duty to 401(k) plans and potential liability if there are losses. It could benefit a lawsuit by Enron workers and many other 401(k) lawsuits that have proliferated as accounting scandals take a toll on retirement plans loaded with employer stock.

Although the judge in the Enron 401(k) lawsuit is under no obligation to accept the agency's view, it should be influential because the Labor Department interprets and enforces pension law.

"It's a very significant position that will help participants in a lot of situations if it's upheld by the courts," says Norman Stein, a University of Alabama law professor who specializes in pension issues.

Though the policy it describes is not new, the brief represents the agency's most detailed clarification of many legal issues relating to retirement plans. Directors and executives often haven't understood their legal obligations.

If the courts agree, the Labor Department's position could have more impact than pension reforms being considered by Congress, says Fred Reish, a Los Angeles pension lawyer. "It will provide a clearer road map for all employers," Reish says. He also says it will mean that executives' own "bank accounts and investments are on the hook."

Labor Department officials would not comment beyond the brief itself. Among other things, Labor Department lawyers say in the brief that if Enron executives were aware that workers were misinformed about the stability of Enron stock, they were obligated to protect them. According to the brief, remedies available to Enron included notifying all investors of the risk, freezing the investments or removing Enron stock as an investment option and as the company matching contribution.

The duty to protect workers doesn't rest only on the trustees who directly oversee a 401(k) plan, the Labor Department says. Any top executives or directors who appoint the trustees are responsible for monitoring the plan and are liable for breaches in fiduciary duty, the brief says.

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