In the wake of the

Enron

implosion, Congress is suddenly buzzing with ideas about how to fix your retirement account -- though you may not have thought it was broken. In the end, a lot of the debate in Washington boils down to this question: Do average investors need to be protected from themselves?

One camp of reformers argues that retirement policy should aim to protect typical 401(k) investors, who by dint of sheer ignorance could end up squandering their retirement. But others say the government shouldn't meddle in the current system, letting people take on as much risk as they want. After all -- at least, for people who know what they're doing -- extra risk can mean fatter returns.

Whatever lawmakers decide, a huge pot of money stands to be affected. As of year-end 2000, 401(k) plans held an estimated $1.8 trillion in assets, covering about 42 million Americans.

Below, we look at the pros and cons of some of the major reform ideas floating around Washington. Most of those discussed are embodied in a bill sponsored by Sens. Barbara Boxer (D., Calif.) and Jon Corzine (D., N.J.), though other lawmakers have offered alternative plans. Depending on your point of view, these proposals range from the sensible to the harebrained. So at the bottom of the page, we invite you to cast your vote on what you think needs to be done to change our nation's retirement policies -- if anything at all.

Sorry, No More Company Stock Until You Finish Your Meal

Of all the reform ideas, the one creating the most controversy is a bid to cap the amount of stock employees can own in their retirement accounts. One proposal would cap the amount of company stock employees can invest in a 401(k) at 10% of their contribution, though the bill doesn't try to regulate employer matches. A more intrusive plan would prevent employees from putting more than 20% of their portfolio in any single stock. (The latter bill, surprisingly enough, was co-sponsored by former Goldman Sachs co-CEO Corzine).

Opponents say putting limits on stock ownership is too paternalistic. "It makes no sense at all," says Dorothy Coleman, vice president of tax policy for the National Association of Manufacturers. "There are employees at many companies -- including household names -- who would be extremely upset if you limited them to 10% or 20% in company stock. It's an artificial limit, and it's really restricting the ability of the employee to invest and grow his retirement fund."

Those opposed to changes in the retirement system say lawmakers shouldn't generalize too much from the troubles at Enron, where employees were wildly overconcentrated in company stock. Indeed, the situation there was hardly representative of most companies. About 58% of the 401(k) assets at Enron were invested in company stock, compared with an average of only 19% of assets among companies overall.

There's a risk, too, that a cap on stock ownership could backfire. If Congress started regulating company stock ownership in 401(k)s, companies might opt instead to make matching contributions through an employee stock ownership plan (ESOP), a type of benefit plan mostly invested in the securities of the sponsoring company. In the latter case, workers would have less incentive to put aside money on their own.

"I will predict with certainty that low-paid people will not continue to make contributions for themselves if there's not an employer match to provide incentives," says Jack VanDerhei, professor of risk, insurance and health care management at Temple University. "And these are the people who really need money for retirement. If they don't contribute, all they'll have at retirement age is Social Security."

Still, a stock cap could, in theory, help some of the more hapless investors among us by forcing people to diversify more. Supporters of the idea point out that under the law, traditional pension plans (known as defined-benefit plans) aren't allowed to hold more than 10% of assets in one stock, to ensure a measure of diversification. So why, they say, should 401(k) plans be allowed to operate differently?

In testimony before a congressional committee last week, University of Alabama law professor Norman Stein endorsed the idea of caps on stock ownership. "If we can prevent thousands of employees from doing something we know is stupid, we should do it," he said. "Retirement policy should be more concerned with preventing avoidable disasters than permitting some employees to beat the market."

Besides, employees' expectations about their employers tend to be too rosy, said Stein. "There is now some behavioral evidence -- Enron is a startling example -- that suggests employees are inclined to overvalue the financial future of their employer in relation to the market as a whole. For every company that outperforms the market, there is another that underperforms it."

Who Calls the Shots on Company Stock?

The idea of a stock cap is bound to rile lots of 401(k) participants because it restricts their power over their own retirement account. But other reforms appear more flexible. Some would actually give employees more control over their investments, aiming to loosen tight restrictions on the use of company stock.

For example, under current law, companies can require that their workers hold on to all the company stock they receive through an ESOP until they're 55. At that age (if they have at least 10 years of participation in a stock ownership plan), the employees have the option of diversifying up to 25% of its value.

A proposed change to the rules would let workers diversify out of the stock starting at age 35, after only five years of service.

In a related reform, companies couldn't force employees to hold matching stock contributions in their 401(k)s for more than a given period of time -- between 90 days and three years, in two different versions of the idea.

Consumer advocates say that currently, company stock simply comes with too many strings attached. "That's an obvious area in need of reform," says Barbara Roper, director of investor protection for the Consumer Federation of America. "You can't shift risk and responsibility for retirement onto employees, then tie their hands when they try to exercise sound judgment and diversify."

Critics of the system say it's especially unfair for companies to restrict the use of stock because they get a tax benefit for giving it. Though companies receive a tax deduction based on the full value of the stock they give, workers themselves can't tap into the value of the stock -- if they receive it through an ESOP, depending on their age, they may be prohibited from selling it for decades.

"If Enron stock were selling at $75 and you or I purchased it on the open market, we would be buying a bundle of ownership rights: One of the most important of those rights is the right to sell when we choose," said law professor Stein in his testimony. "How much would we pay for a share of stock otherwise selling at $75 if it contained a restriction prohibiting us from selling for 15 or 20 years? Far less than $75."

But many companies don't want to lower the existing age limit. In practice, allowing employees to cash out of stock sooner could create administrative hassles for the companies -- especially for the small, privately held concerns that operate more than 95% of ESOPs. Right now, companies know their employees won't cash out of shares until they're 55, and can plan their cash flow around that. Dropping the age would create more uncertainty for their expectations.

And from a philosophical standpoint, because companies voluntarily give stock to their employees as a perk, the company should be allowed a say in how employees can use it, says Coleman of the National Association of Manufacturers. "Employees are not purchasing the stock," she points out.

Companies: Out to Preserve the Status Quo?

If you've gotten the sense companies are leery of the new reform-mindedness in our nation's capital, you're right. In January, a powerful coalition of business lobbying groups, including the National Association of Manufacturers and the U.S. Chamber of Commerce, sprang into action to urge Congress to move with deliberation on reform efforts.

Conveniently, as part of the groups' crusade to preserve the status quo, they'd like to preserve a tax benefit for companies. They now receive a 100% deduction for making matching contributions in stock to their employees; one reform proposal would cut that deduction to only 50%.

Coleman, one of the coalition's representatives, denies its primary goal is to preserve this advantage. "That by no means is the motivating force behind

our support for company stock or employee stock ownership," says Coleman. Among other things, she says, the practice of giving stock helps build loyalty to a company, and it enriches some employees.

No matter whom you believe, it's clear big changes are brewing in Washington that could affect your retirement accounts. The question that remains is whether they'll leave you with more or less control of your own investments.

What do you think about pension reform? Vote your opinion:

1. Should there be a 10% limit on how much of your retirement portfolio can be invested in company stock?

1. Yes

1. No

2. Should there be a 20% limit on how much you can invest in a single company in your retirement plan?

2. Yes

2. No

3. Should employees in stock ownership plans be allowed to diversify out of a company stock at age 35 instead of 55?

3. Yes

3. No