The Lay Deed or the Tiger

Some experts believe former Enron CEO Kenneth Lay may have violated his fiduciary duties under ERISA.

That of course, raises the question: was the Enron CEO acting as CEO or plan fiduciary when he spoke to employees in August? “The question of when a company official is wearing his ‘fiduciary’ hat or his ‘employer’ hat is one that frequently gives courts difficulty,” conceded Susan Stabile, a St. John’s University law professor, in testimony before the Senate Committee on Governmental Affairs earlier this month.

A 1996 Supreme Court decision, Varity v. Howe, sheds some light on exactly when an employer may be considered a fiduciary. If an executive makes comments about a company’s prospects during discussions about that company’s benefit plans — and workers regard that executive as both employer and plan administrator — the comments “may be viewed as statements made by a fiduciary,” asserted Stabile.

Stabile told lawmakers that Lay’s ERISA liability depends on the nature of the Enron employee meetings and the content and purpose of the E-mails and other written materials sent to employees. She believes, however, that there is at least a question whether a fiduciary misrepresentation was made to plan participants. If such misrepresentations were made, “employees have a claim under ERISA to restore their losses,” she told the Senate committee.

Day Late, Millions of Dollars Short

Lay and Enron could have avoided potential conflicts by appointing an independent fiduciary to handle the 401(k)’s investments, notes Shore. She says she’s advised clients to do exactly that. A fiduciary who detects that a company is headed for a bad stretch can promptly start selling company stock held in the 401(k). Even without insider knowledge, Shore thinks, a truly independent fiduciary at Enron would have sensed that all was not right at the company. Why? Because Jeffrey Skilling, Lay’s handpicked choice to succeed him as CEO, resigned after just six months on the job, Shore says.

Then again, Lay’s possible 401(k) dilemma might have been beyond the grasp of even the most scrupulous independent fiduciary. That dilemma could have existed only if Lay had actually been dishonest — that is, in possession of damaging nonpublic material information but saying otherwise. So far, Lay and other former Enron executives aren’t talking about that. (CFO.com placed a call to Enron’s public relations department about this story but received no answer.)

Meanwhile, the Enron 401(k) plan is likely to have an outside investment arbiter soon. Ann Combs, assistant secretary of labor in charge of the Pension and Welfare Benefits Administration, reportedly said the Labor Department is moving to replace the trustees of the Enron’s 401(k) plan with an independent fiduciary. The department is said to be bringing in an independent fiduciary for Enron’s defined-benefit and employee stock ownership plans as well. Enron employees, who have seen much of their retirement savings wiped out, are no doubt thrilled by the move.

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