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Pensions

Enron workers just can't get a break. The collapse of the energy giant's stock not only wiped out many 401(k) plans, but it also gutted pension benefits many workers counted on for retirement.

At a time when Congress is rushing to introduce legislation that would protect 401(k) plans from the perils of too much company stock, there has been little outcry about Enron's pension losses.

''What they've done to the traditional pension and older Americans is an outrage,'' says Karen Ferguson, head of the Pension Rights Center. ''It should be front and center of policymakers' concerns.''

Unlike 401(k) plans, traditional pension plans are funded by an employer and provide a guaranteed benefit based on the years of service and the salary of a worker. Unlike 401(k) plans, pensions cannot invest more than 10% of their assets in employer stock.

But Enron's pension plan had an unusual feature: Benefits from the plan during an eight-year period were reduced or eliminated based on the value of Enron stock that workers received in an Employee Stock Ownership Plan, or ESOP. Though workers were allowed to diversify the stock held in the ESOP over five years, many did not. Now Enron stock is virtually worthless.

One reason many workers say they held onto Enron stock was that it had done well for them, and even after it began to fall, top management remained optimistic about its prospects. Others simply didn't understand the complex pension plan. ''It was as convoluted as the rest of Enron's operations,'' says Maritta Mullet, who worked for Enron for about 10 years.

Like many companies that go through various mergers and transformations, Enron had several pension plans covering different periods. One former employee, who asked that his name not be used, worked for Enron and a predecessor company for 25 years. Based on a pension benefit summary from June, he says he was entitled to receive these amounts from the different plans:

* $221 a month at retirement from a traditional pension plan, which was in effect until 1986.

* Nothing from a pension plan in effect 1987 through 1994. The benefits were offset by the ESOP.

* $15,000 in a lump sum from a ''cash-balance'' pension plan introduced in 1996. Enron put 5% of a worker's pay into a fund that earned interest based on the 10-year Treasury bond yield.

That pension won't go very far in retirement. But back in June 2001, the situation didn't seem so grim, because the worker had $385,000 worth of Enron stock in his ESOP. At the time, it was trading at $49 a share. It closed Tuesday at 32 cents.

Counter to basic concepts

What happened with Enron from 1987 through 1994 runs counter to the basic concept of an employer-funded pension, says Norman Stein, a University of Alabama law professor who specializes in pension issues. ''It makes a mockery of the certainty and predictability in defined-benefit pension plans,'' he says.

During the period in question, Enron had what's called a floor-offset pension plan. It established a floor for the minimum level of benefits that workers would receive. Value of stock a worker received in the ESOP partially or entirely offset the pension benefit.

In a description of the plan, Enron gave an example of a 45-year-old worker, who after eight years of service had earned a benefit of $600 a month. Assuming the worker planned to retire at age 62, the document said that the worker would receive a benefit from the company pension, or the ESOP, or a combination of the two that equaled at least $600 a month.

But many workers got neither the pension benefit nor the ESOP. ''They got the short end of both,'' says Fred Reish, a pension lawyer based in Los Angeles. ''It was a convoluted plan that imposed tremendous risk on the participants.''

Behind the pension losses

Between 1996 and 2000, when Enron was phasing out the floor-offset plan, its stock more than quadrupled in price, nearing $90 in late 2000. Enron used stock prices during those years to calculate whether the ESOP would cover workers' minimum benefits.

As a result, many workers got stock in the ESOP in lieu of getting monthly pension payments in retirement. Though workers were able to gradually move out of the stock in the ESOP over a five-year period, many chose to stay put. As of Dec. 31, 2000, there was about $1.1 billion worth of Enron stock in the ESOP. In hindsight, it wasn't the best decision to keep the stock.

Many workers also invested their 401(k) assets in Enron stock and lost large portions of their retirement savings. But there's a big difference between a 401(k) plan and an employer-funded pension.

Employers are supposed to bear the risk and provide a guaranteed pension. So although Enron's plan seems to have complied with federal regulations, it violated the spirit of the law, some experts say.

''In this case, the pension promise was broken,'' Stein says. ''Instead of providing a minimum pension benefit, Enron pulled the rug out from under the workers.''

Almost three-fourths of respondents to a recent poll think the government should regulate companies' retirement plans more closely to prevent "future Enron-like debacles," according to a survey of 886 U.S. adults released Jan. 24.

Seventy-three percent of respondents said government should regulate company retirement plans, and 79 percent said they think executives at large companies put their own personal interests ahead of workers and shareholders.

The poll, conducted by Harris Interactive Inc. and BusinessWeek, reflected "corporate backlash," according to the researchers.

The telephone poll, conducted between Jan. 16 and Jan. 21, found that only 3 percent of respondents believe that large U.S. companies have excellent business ethics. Thirty percent said companies' ethics are good, 42 percent rated them fair, and 22 percent said large companies have poor ethical practices.

The poll also found that twice as many Americans said they have very little confidence in the executives of major companies as they did in an earlier poll, 24 percent in 2002 compared with 13 percent in 1999.

A majority (67 percent) said they believe U.S. companies are excellent or pretty good at making good products and competing in a global economy, but 73 percent do not believe that businesses do a good job at being straightforward and honest with consumers and employees.

Those surveyed gave moderate support to government agencies and accountants to serve as "watchdogs" over big companies—60 percent said they have some confidence in the government and 58 percent have some confidence in accountants. Nearly half, however, said they do not trust lawyers to be watchdogs, according to the survey. Forty-three percent reported some confidence in lawyers, but 47 percent reported hardly any confidence at all.

The poll has a margin of error of plus or minus 3 percentage points.

At a time when Enron Corp. was cutting back on its employee retirement plans to save money, executive benefits at the energy company kept getting richer.

Beginning in the 1990s, Enron joined many other U.S. companies in trimming its employee-pension and savings-plan benefits to cut costs. But throughout the same period, Enron also was continuing to offer a lavish set of pension and retirement plans for its top executives.

Those benefits, including a lifelong pension and company-paid insurance premiums for Chief Executive Kenneth Lay, are likely to come under more scrutiny, given the effect of Enron's collapse on the company's employees. The U.S. Department of Labor Wednesday will hold a briefing on its investigation of Enron's retirement plan.

Not only did Enron workers lose their benefits when they lost their jobs, but they also have seen their retirement plans gutted as Enron's stock, which accounted for as much as 60% of the company's 401(k) plan, has dropped to about 50 cents a share from a peak of $90 last year.

At the same time that employees were locked into much of the Enron stock in their 401(k) plans, executives last year sold shares valued at about $128 million, on top of $486 million in sales in 2000, according to Thomson Financial/Lancer Analytics, which tracks insider transactions. Mr. Lay alone sold shares valued at $29.8 million during that period. According to company filings, Enron will pay Mr. Lay a pension estimated at $475,042 a year for life. In addition, as part of an agreement Mr. Lay signed with the company in 1996, it agreed to pay a total of $1.25 million in insurance premiums through 2001 on a $12 million life insurance policy. Other executives have similar pension or insurance agreements with Enron.

Such so-called "split-dollar" policies are used to channel executive pension benefits into vehicles that executives can tap or pass on to their heirs, mostly tax-free. Enron also has a kind of executive 401(k), established in the 1980s, which guarantees executives in the plan minimum returns of 12%.

In addition, at the time the company was reducing pensions for most of its employees, Enron set up an executive savings plan that lets participating executives contribute 25% of their salaries and 100% of their cash bonuses each year. The participants were guaranteed a 9% return on the first two years of the plan, and they were allowed to put their money into an array of investments -- not just Enron stock.

While the existence of Enron's executive benefits is outlined in company filings and Securities and Exchange Commission documents, the total cost of the pension and retirement promises to Enron executives is nearly impossible to measure. The cost of the split-dollar arrangements is largely invisible (only the premiums are reported as an expense), and the benefits that accrue in the executive savings plans (also known as deferred-compensation plans) aren't required to be disclosed. An Enron spokesman didn't respond to requests for comment.

However, filings show that the liability for the executive pensions was $56 million in 2000, or about 8% of the total pension liability for all employees and retirees. The documents do show that at the same time that Enron was beefing up retirement benefits for its top executives, it was cutting them for its other workers.

According to SEC filings, in 1986 Enron set up an employee stock-ownership plan, which bought 8.7 million shares of Enron stock in exchange for a note of $335 million. To pay off much of this debt, the company in January 1987 terminated its overfunded pension plan, and transferred the $230 million in surplus assets, tax-free, to the ESOP.

Meanwhile, the company set up a new pension plan, transferring into it the assets and liabilities from the old plan; the new plan, though no longer overfunded, was less costly than the old one.

But even though Enron set up an ESOP and a new pension, this doesn't mean Enron employees were to enjoy benefits from both a pension and an ESOP. That is because Enron created a so-called "floor-offset" arrangement between the pension and the ESOP. That meant the benefits employees earned in one plan essentially erased benefits earned in the other. These arrangements have been used by many companies, including Hewlett-Packard Co. and Airborne Inc. A major reason why companies set up these arrangements is to reduce their pension expense. And, indeed, the "offset" contributed to a significant decline in Enron's pension expense, which was $3.6 million in 1987. After the offset was established, instead of an expense, Enron's pension actually contributed $9.6 million to Enron's bottom line in 1988.

In an unusual step, Enron calculated the ESOP "offsets" based on the price of the stock from 1996 to 2000, when it was trading between $37.75 and $43.44. As previously reported in The Wall Street Journal, it then used the higher locked-in value of the ESOP accounts to permanently cut the value of pensions that employees had earned between January 1987 and January 1995. According to filings, employees had $116 million in ESOP assets at the end of 2000. The assets now are nearly worthless.

Some Enron employees still will receive their pensions -- albeit at the reduced values. How much employees lost depends on the size of the pensions they had earned, and the value of their ESOP accounts from 1996 to 2000. This arrangement comes to light because Enron sought -- and received -- permission from the Labor Department to change its plan in this fashion; company documents also indicate that Mr. Lay's pension wasn't affected by the ESOP offset.

Not only were the past pensions permanently erased, but the pension going forward, in 1996, also was reduced. At that time, Enron converted the traditional pension to a cash-balance pension, which reduces the benefits build-up for longer-term, older workers. This fall, as the company slid toward bankruptcy, Enron said it might freeze the pensions of all employees, and it stopped contributing to the 401(k).

Cassell Bryan-Low contributed to this article.

WASHINGTON - While shredded documents and questionable accounting are getting all the headlines, the Labor Department is quietly looking into the $1.3 billion question of what happened to Enron employees' retirement savings.

The probe into the management of the bankrupt company's 401(k) and employee stock ownership plans will take some time, said Assistant Labor Secretary Ann Combs.

"If we find that there were problems -- this will very likely end up in litigation -- we want to make sure we have a rock-solid case," she told reporters at a briefing on her department's investigation.

Two congressional committees will hold hearings into the Enron debacle on Thursday morning, with further hearings scheduled for the next few months.

The Labor Department's role in the investigation is to determine whether the company or its benefits manager committed a breach under the Employee Retirement Income Security Act, the federal law governing employer-provided retirement plans, officials said at a news briefing.

Enron's 401(k) plan had nearly 21,000 participants at the end of 2000, the year for which the most recent statistics are available. Sixty-three percent of the plan's assets were invested in Enron and its subsidiary stock, valued at $1.3 billion, Combs said.

The company's employee stock ownership plan claimed 7,600 participants. Under the stock ownership and 401(k) plans together, participants had invested in 27 million shares of Enron stock, Combs said. The shares are nearly worthless now.

In most cases, employees were prohibited or restricted from selling Enron stock in their retirement accounts. Meanwhile, Enron executives sold about $1.1 billion worth of Enron stock in the past three years, according to a civil suit filed against the company.

According to pension industry data, the average 401(k) plan for large companies has about 32 percent of its assets in company stock.

At least 25 companies' plans have more than 60 percent of their assets in company stock, including 95 percent at Procter & Gamble, 81 percent at Coca-Cola and 74 percent at McDonald's, according to a recent industry survey.

Under ERISA, the retirement plan administrator - often an outside consultant -- exercises control over the plan and must act solely in the interests of beneficiaries and participants, not in the interest of the company.

The administrator can face criminal penalties for knowingly filing false documents, embezzling funds or receiving kickbacks, among other violations. The Labor Department is coordinating its investigation with the Justice Department, Combs said.

In addition, any lawyer, record keeper, account or investment manager who takes on such responsibilities also can be held liable for losses occurring from unlawful breaches of trust.

Even if the plan administrators are insured, they are still responsible for any breaches of obligation, although the liability insurance can offset the damages.

"There was insurance in the Enron situation," Combs said, "but I think it's fair to say it probably would not cover the lawsuit that's expected if it's determined that there was a breach."

Enron's retirement plan had been administered by Chicago-based Northern Trust until early 2001, but the company switched to Lincolnshire, Ill.-based Hewitt Associates. During the switch, the company imposed a "blackout period" in which employees could not access their retirement accounts.

This is not uncommon among companies nor does it violate the retirement security act, Combs said. Unfortunately for participants, the blackout period came just after Enron re-stated its financial results and as the stock price tumbled further.

Many employees testified at a Senate hearing last month that they lost their life savings.

A number of politicians have criticized the company for not encouraging employees to diversify their retirement portfolios, although plan administrators are not required to encourage diversification of 401(k) assets, Combs said.

Employers are not liable for the results of their employees' investment decisions, provided the employees have control over their individual investments.

President Bush recently created a task force consisting of Labor Secretary Elaine L. Chao, Treasury Secretary Paul H. O'Neill and Commerce Secretary Donald L. Evans to study possible changes in pension law.

O'Neill said Wednesday that the group could make a recommendation to Bush within days. The three Cabinet secretaries planned to confer by phone on Thursday, he said.

Combs said the group is close to making recommendations, although she said it is not practical for the government to limit the amount of company stock that employees may invest in their retirement funds, as some legislators have suggested.

"I believe and the administration believes (that) there's a great need for giving more investment advice to individuals so they can manage their money," she said.

In the year 2001, the Labor Department opened approximately 4,000 investigations, finding breaches in 2,400 cases. It sought 76 indictments and got 49 convictions, recovering $662 million.

The largest single category of the department's investigations involved the employer's mishandling of employee contributions in 401(k) plans, said Alan Lebowitz, deputy assistant secretary of the pension and welfare benefits administration.

Jan. 23, 2002 - Janice Farmer is afraid of her electric bill, so at night she sits in the dark. Retirement wasn't supposed to be like this; this wasn't what Enron, America's genius energy supplier, had promised. Farmer once had $700,000 in her 401K -- her life savings, all in Enron stock, built up over 16 years with what had been the seventh largest company in the United States, a company touted by the press, the execs, the Wall Street analysts as the future of American business. The money's gone; what remains is sorrow and astonishment.

"I was proud to invest in Enron stock," Farmer told a Senate committee last December, one of seven now investigating the Enron collapse. "We were a loyal and hardworking group of employees. We lived, ate, slept and breathed Enron because we were owners of the company. I trusted the management of Enron with my life savings.

"Senators, I won't mince words here," Farmer told the chamber. "They betrayed that trust."

Tens of thousands of Enron employees and retirees together lost as much as $1.3 billion, and probably a lot more, in what appears to be a monumental case of cooked books, lying and corporate corruption. Some say they'll be forced to sell family land, or homes, or take their children out of good schools they can no longer afford. Some are so depressed they're now on medication. Some who put everything into Enron stock -- ignoring the basic principle of diversity in 401K investing -- damn themselves for being so easily seduced. The hardest hit are the retirees, like Farmer, who worked in the natural gas "right-of-way" office managing pipeline systems. Or Charles Prestwood, who spent 33 years in the gas industry, the last 15 with Enron, working the pipelines themselves. His 13,500 shares were worth about $1.3 million at peak. When I spoke with him, Enron was trading at 67 cents, down spectacularly from a 52-week high of $83. In a few days, the stock would be delisted.

Prestwood lives on a three-acre farm in Conroe, Texas, 60 miles north of Houston; he has two horses and a feed barn. He survives on a pension from a previous employer -- about $521 a month after health insurance and income tax -- and a social security check of $1,294. "I'm not gonna be able to last long like that," he says. "I got some land that I wanted to give to my kids. That land was given to me by my mother. My mother died when I was born. I can go in the cemetery and look upon her tombstone, that's the day I was born, September the 15th, 1938. That land was the only thing other than the family Bible that she left me. My daddy and her, they had an agreement: If something happened to her and her baby lived, she wanted her portion of the property to go to the baby, and my daddy right there said, 'If something happens to you, I'll give the baby my part too.' And my daddy did, in November of 1938, he deeded that eight acres. I've got to sell that land now. That'll take care of a few more of them house notes.

"There ain't no such thing as a dream anymore," Prestwood says. "I hadn't planned much for the retirement. Wanted to go fishing, hunting. I was gonna travel a little."

Wayne Stevens, who is 61 years old, worked for 10 years for Portland General Electric, one of Enron's 3,500 subsidiaries. Until he retired in January of 2001, Stevens was a serviceman at the Trojan Nuclear Plant in Rainier, Ore. His job involved dismantling and decommissioning radioactive pipes and pumps, slow and careful labor. His wife, Katherine, still works for PGE, a 17-year employee. They had stock worth over $700,000. They sold or rolled over most of it at 33 cents a share, at the tail end of a nauseating spiral in October and November, the death-knell days that followed Enron's out-of-the-blue Oct. 16 announcement of a $638 million loss for the quarter.

The Stevenses held on. They believed in the company. They said, "What's a half-billion dollars to a $70 billion company?"

Even if they'd wanted to sell, though, they couldn't have, because of a somewhat hinky affair Enron employees are now referring to as "the lockout." From approximately Oct. 17 to Nov. 19, Enronites found themselves powerless to access their accounts: Enron said it was in the process of changing 401K managers, thus the asset freeze. But during that same period, the stock plummeted from about $32 to $9.06 and by Nov. 29 it had dropped to .36 cents -- it had lost 99 percent of its value as investors abandoned ship, and the freeze was looking less like procedural bureaucracy than a conspiracy to keep employees from jumping as well. Hundreds have joined a class-action lawsuit to look into the legality of the lockout, and the plaintiffs include dozens of PGE employees (as well as Farmer and Prestwood).

The experience at PGE does much to explain why the Enron debacle has been so disastrous for employee investors. PGE employees were on average 62 percent invested in Enron stock, according to one estimate. That's unhealthy: Portfolios should normally hold no more than 3 percent in any one company. "We were like most of the people here," says Wayne Stevens. "For years the media had been saying how great a company this was, one of the jewels of the energy business. You know ... we just believed them.

"Even now, I still think [Enron is] going to come back," says Stevens. "I don't know why I keep thinking that."

When Enron purchased PGE, a solid 100-year-old utility, in 1997, shares in PGE's 401K program were converted to Enron stock. Enron's savings plan had rules not uncommon to big corporations. Employees could contribute up to 15 percent of their earnings; Enron would match up to 10 percent, but only in Enron stock, not cash. Employees could opt to have their bonuses paid in stock options. The incentive behind the options: two for one on the dollar, meaning you got $2 of options for every $1 of bonus. Katherine Stevens took the options, while Wayne Stevens took cash -- people laughed at him for that. "I got probably $15,000 or $20,000. At least I got it, I have the cash."

So Enron's 401K plan made Enron stock its centerpiece: You ended up with a lot of Enron "whether you wanted it or not," says Steve Lacey, a PGE emergency dispatcher who was 100 percent invested in Enron. And you couldn't sell that matching stock until after age 50; even then you could only sell small bits of it at a time. "They had you locked into it," says Lacey.

The plan's limited portfolio choices, meanwhile, seemed very conservative against the fireworks of meteoric Enron. In mid-'99, Enron split at just above $40, and over the next six months it was a certified high-flier, hovering in the $60 to $70 range and up into the $80s throughout 2000. "And when it split, that's when the craze started," recalls Lacey. "And it was common, very common, for people to go 100 percent with Enron."

The craze was fueled in part by company hype, the mailings and e-mails, the glossy literature -- "A well-oiled machine, always something somewhere about the stock," says Lacey. "The P.R. job they did on us! 'Get your parents involved, get your friends! Now's the time to jump on.'"

The cheerleading on Wall Street helped. Recalls Charles Prestwood: "Back on Jan. 26 of 2001, the analysts were predicting that at the end of the year Enron stock would be worth between $122 and $126. They predicted that at the end of 2002, it would be worth $145. It was always strong buy, strong buy -- buy all you can! When you read them kind of things, when you seen three stock splits in eight years, that's like having your horse way out there in front, and you say, 'Man, ain't no way I'm gonna take him out!'" Into this hysterical mix came human weakness: swollen expectations fueled by the hype, a kind of "affluenza" angst of people seeing others become millionaires hitching their lives to Enron. They didn't want to miss the ride up the mountain.

"We're conservative people," says Wayne Stevens, who says that like many other PGE employees, he's "embarrassed" by what's happened -- embarrassed by his investments. "When Enron bought PGE, the stock went through the roof, and like everybody else we got excited, but we were careful. A lot of friends around us were putting everything into Enron stock. They were making money hand over fist. We had most of our money in mutual funds. But then we moved it over to Enron stock too. We put everything in one basket. We know that you shouldn't do that. But once we did it, we never moved. We were pumping money into it the last couple of years, putting the max that the law would allow, buying stock on the side, out of our own pockets, all thinking of the future, that this money would keep us from having to sell our land. We wanted to save that for our kids.

"And every day you went to work, you couldn't hardly wait to get there. It was fun to go to work. Your team was winning every day. It was just euphoria. No one could see that there was any possibility we could lose. You lost sight of reality. You never dreamed they'd ever go bankrupt."

Steve Lacey remembers the euphoria that washed over PGE: He got sick of it. Lacey, 45, is not a "stock person," as he puts it; he doesn't watch companies or know much about how to value them; he doesn't have a portfolio he cares about. This was characteristic of a lot of the workers at PGE. "All I wanted," says Lacey, "was to put the maximum amount of money that I could legally put in, have them match it and retire as soon as I could. That was my whole goal. There was no real knowledge with it, as far as investing." But suddenly there were people at PGE who tried to be day-traders because of their "success" with Enron. "Oh! It was scary. Scary," recalls Lacey. "Here are people who are watching a stock go up and up and up; they were just frenzied. I mean, I'd walk in and there'd be at least one computer screen with the stock market on, live reports, guys'd sit there and watch it all day long like it was their favorite soap opera. It was always there: 'How'd the stock do today?' 'Oh, it's up to 89.' 'OK, good.' And this spurred some guys who thought they were going to make a killing in the market. There'd be these groups standing around, guys like me who climb power poles for a living, talking about becoming millionaires day-trading. I know some people who got hurt real bad. People used credit cards to keep buying stocks, you know, the fever was that bad. I know guys who went out and bought large amounts of Enron after it collapsed. One fellow lost $370,000 in his 401K, and he turned around and spent $45,000 of his own money to buy Enron at 10 cents a share.

"And it wasn't just workers. It was managers, it was secretaries -- it was every walk of life in that building. It was like a sickness."

Lacey has worked for 21 years at PGE. That's not long for Portland General, a company that still hires through family and friends and neighbors, where people work 30 and 40 years, where second- and third-generation employees work side by side. "I know families that have four members working here," says Lacey. "I know a guy whose brother works here, his wife works here and his brother's son works here. There are lots of husband and wife teams. Families that have lost everything."

Like Charles Prestwood, the Stevenses had no grand plans for retirement. They would use the money for college for their grandchildren. They would use it to hold on to their land, 24 acres settled by Stevens' grandparents, who traveled from Michigan in 1901. "That's 101 years in the family," says Stevens. "I grew up on this land from the time I was 9 years old, and I have so many memories of it, every inch of this ground, I've got myself in this land. We wanted to leave it to our kids, so they'd leave it to their kids, and it would carry on in the family name.

"But it didn't work out," Stevens says.

Yet oddly none of these people are bitter; they don't lash out. The feeling one gets talking to Enron employees is of heartbreak, a kind of pale-faced head-shaking shock -- as if an old buddy or a parent had suddenly turned. "I'm just a hardworking country boy," says Charles Prestwood, who made $65,000 a year. "When I graduated from high school in May of 1957, I never missed a payday until I retired on October the 1st of 2000. Worked construction for a while, and welding, then I went to work for Houston Natural Gas Systems in March of 1967, started in maintenance, at $2.78 an hour, sweeping the sidewalks, emptying the trash cans, mopping the floors. I was there when Internorth and Houston Natural merged in 1985 and Enron was born. I was with 'em all the way, from the very beginning, 33 and a half years. We had a goal: We wanted to be the No. 1 gas supplier. My job on the pipeline was keeping the gas flowing to our customers. I worked all my life devoted to it. That's what's so hurting -- so hurting down deep in your heart: When you work a whole lifetime and help build something, you feel like you had a part in building Enron ... and then to see it tore down right in front of your eyes."

Business booms are famous for hiding underlying problems in an economy. It takes a recession to make them obvious. Now, like melting snow, this recession is uncovering a glaring inequality in the system the United States has gradually adopted over the last 20 years to prepare its workers for retirement. The Enron Corporation is the showcase. Its top executives are walking away with money in their pockets for their own retirement, while their employees have watched their pension savings disappear because Enron's stock price plunged.

But Enron is not the only place where inequality exists. With much less fanfare — and in the absence of corporate misbehavior — top executives at other big companies have been similarly insulated from the losses that recession and reversal are imposing on their workers.

In the 1980's and 90's, millions of workers were persuaded that when they invested in stock plans for their retirement, they were gaining access to the same rising market that has traditionally benefited the wealthy. It seemed a way to make access to retirement security more equitable. But when prices fell, lower-income people began suffering in ways that higher-income people have not, because top executives have better information, more diversified ways to save and, above all, company-funded pension plans that are less and less available to ordinary workers.

In other words, workers gained an ability to profit from a stock market boom alongside the wealthy, but not an equivalent ability to withstand a downturn. "What we are seeing is a retirement safety net for top executives, whereas ordinary workers, in the name of freedom to manage their own investments, are left without a safety net," said Michael Sandel, a Harvard political scientist. "Worse than paradoxical, is there not something unfair in such a system?"

That question is only beginning to surface as workers experience the downside of investing their retirement savings in their employer's stock. They were happy to do so while stock prices surged in the 1990's, when they bought into an increasingly popular view pushed by the Clinton administration and by many corporate leaders. That way of thinking held that a well-informed worker, free to invest his or her own savings, would reach age 65 with a larger pension than the company could provide by financing a fixed-payment retirement plan. The same reasoning played a role in the movement — now dormant — to privatize Social Security.

Pat Cleary, a vice president at the National Association of Manufacturers, a lobbying group, puts the argument for such plans succinctly: "There are a lot of millionaires out there at all levels, white and blue collar, who became millionaires by investing in their own companies' stocks. We would not want to discourage that."

Few were discouraged as long as stock prices rose. The percentage of workers who depended on 401(k) style savings plans rose to 27 percent in the late 1990's from 16 percent in 1989, while the percentage who relied on company-funded pension plans fell to 7 percent from 15 percent. And the amounts that people invested in their employer's stock also rose, reaching 19 percent of the nearly $2 trillion held in 401(k) plans.

Now the recession, and the Enron crisis, are shaking people up, particularly those earning less than $60,000 a year, who make up more than half the work force. Their 401(k) contributions represent virtually their entire savings, pension experts say. And at many companies the portions invested in the employer's stock are disappearing.

At Enron, 15,000 workers have lost $1.3 billion of the $2.1 billion that was in the company's 401(k) plan a year ago.

In addition, tens of thousands of workers at other big companies — Lucent, for example, General Electric, McDonald's, Coca-Cola — have held their collective breath as these companies' stock prices fell by more than 20 percent in the last year. All four, like Enron, have 401(k) plans heavily invested in their own stock. But officers at the top of these companies have much more room to maneuver. "The reason that highly compensated top executives do not get hit like ordinary people," said Annika Sunden of the Center for Retirement Research at Boston College, "is that the highly compensated are also highly diversified, much more diversified than the middle income employee who is encouraged by his employer to own the company's stock. And they are much less dependent than the ordinary worker on a pension as the source of retirement income."

Pearl Meyer, president of Pearl Meyer & Partners, an executive compensation consulting firm, maps the world of top executives. For one thing, she says, they know before their employees do when their company is in trouble. They can sell big portions of their stock holdings before the trouble becomes public and the stock price plunges, as Enron's did, falling in a few weeks from more than $30 a share to less than $1 before it was removed from the New York Stock Exchange last week. Getting out ahead of the tidal wave is one way to describe the actions of Kenneth L. Lay, Enron's chairman, and other top Enron executives. BUT even if the executives of a suffering company sell none of their shares on insider knowledge, they have other ways to cushion themselves for retirement. These executives, Ms. Meyer says, receive 67 percent of their compensation in the form of company stock. So they are at risk. But the total compensation is $10 million a year for the average top executive at the 200 big companies she studied. So more than $3 million still comes to each in cash, and that means the executive can diversify investments far more than the ordinary worker can.

Financial advisers, paid for by the company, help the top executive diversify and get into sophisticated investments. Most have also built up $5 million to $10 million in real estate investments, usually in the form of two or more expensive homes, Ms. Meyer said. And the riskier the business an executive runs, the more conservative he or she tends to be in making outside investments. "I find that executives in the most volatile industries buy bonds," Ms. Meyer said.

If all else fails, the top executive has a safety net — the same company-funded pension that ordinary employees are gradually losing as companies shift them to 401(k)-style contribution plans, which require workers to make payroll contributions. Companies frequently match part of the employee's contribution, often with company stock that can't be quickly sold.

The company-funded pension plans for top executives are cash, not stock arrangements requiring a contribution from executives. Not only top executives get them, but many managers earning upward of $200,000 a year, Ms. Meyer says. The retirement payout ranges from 60 percent of an executive's pre-retirement pay after 30 years down to 25 percent for an executive with 15 years. The pension payments are in cash.

Richard A. McGinn was on the very high end of this spectrum when he was ousted as Lucent's chief executive in 2000 at age 52 and began to receive a pension of $870,000 a year, not far below his final year's salary. That was the year that Lucent's stock fell to $15 from $77 (it is now below $10). The stock plunge shrank the savings of thousands of Lucent workers who had built up $11 billion in the company's 401(k) plan, 17 percent of it in company stock. The 401(k) has been gradually overshadowing a company-financed pension plan for employees.

What Lucent's experience reflects "is a broader shift in our society away from a willingness to share the consequences of bad times, toward making individuals face the risks of economic downturns on their own," Mr. Sandel, the Harvard political scientist, said.

With Enron spotlighting the consequences, the National Association of Manufacturers is reviewing its views — and so far sticking with them, Mr. Cleary said. Anything that encourages personal savings is good for the economy, he argues. More directly, when employees have savings in company stock they are more loyal, more committed to their work, more likely to raise product quality. And using stock rather than cash to match employee contributions to 401(k) plans is often the least expensive route for a company.

Mr. Cleary says companies are telling him, "Let's not foul all the 401(k) plans that are working because one went wrong."

But apart from how well these plans might be made to work — perhaps through a law limiting the amount of a company's own stock in its 401(k) plan — there is another, more basic, criticism of the shift toward requiring people to save for their own retirement. Given that most households have less than $60,000 a year in income, their savings in 401(k) plans average only $20,000.

That is far from enough to pay for retirement beyond what comes from Social Security, says Karen Ferguson, director of the Pension Rights Center. She would require employers to contribute much more than their workers to 401(k) plans.

There lies the road back to company- funded pension plans.