SYNOPSIS: Commentary on Enron's retirement plans for its employees

When a seemingly profitable enterprise suddenly goes bankrupt, there are surely lessons to be learned. When that enterprise is the most admired company in America, lauded by business theorists as the quintessential 21st-century corporation, one wonders if it is the tip of an iceberg. And how many of us have, without knowing it, booked passage on the Titanic?

It will take time, and many legal proceedings, before the full story of Enron's collapse becomes known. But one thing is already clear: The case shows how adept corporate executives have become at shifting risk away from themselves and onto others, in particular onto their employees. Enron's leaders have walked away from the debacle chastened but very, very rich. Many of Enron's employees — no doubt including the loyalists who sent irate letters every time I criticized the company — have lost their life savings.

Behind this disaster for ordinary workers lies a little-remarked sea change in America's retirement system. Twenty years ago most workers were in "defined benefit" plans — that is, their employers promised them a fixed pension. Today most workers have "defined contribution" plans: they invest money for their retirement, and accept the risk that those investments might go bad. Retirement contributions are normally subsidized by the employer, and receive special tax treatment; but all this is to no avail if, as happened at Enron, the assets workers have bought lose most of their value.

It's easy to make the theoretical case for defined-contribution plans. Such plans expand an employee's choices; he can choose how much to save, and how to invest his money. And more choice is ordinarily good.

But the sad fate of Enron's employees highlights the difference between theory and practice. As Gretchen Morgenson of The Times pointed out on Sunday, workers across the country have been cajoled or coerced into holding a high proportion of their retirement assets in their employers' own stock. The exploitive nature of this financial incest was emphasized by Enron's now-notorious "lockdown," in which — purely by coincidence, say executives — new rules forced employees to remain invested in the company's stock just as the firm began its death spiral. So much for freedom of choice.

And even when employees have real choices, one wonders whether they fully appreciate the risks. The shift away from old-fashioned pensions coincided with an enormous bull market; surely many workers who have never seen stock prices fall since they became investors underestimate the risk of capital losses.

One hopes that corporate collapses will not become commonplace. Still, it's highly likely that millions of American workers will have near- Enron experiences, learning to their dismay that big chunks of their retirement savings have evaporated. They will be left dependent on the one great defined-benefit program that remains: Social Security. That is, if it's still around.

The Bush administration's commission on Social Security reform issued its latest report last week, just as Enron entered its death throes. Most of the criticism of that commission's work, my own included, has focused on its, yes, Enron-like accounting: items seem to migrate onto or off the balance sheet to suit the commission's convenience. Thus when the Social Security system takes in more money than it pays out, as it does at present, this has no significance — the federal budget is unified, you see, so it doesn't mean anything when one particular piece of it is in surplus. But in 2016, when the Social Security system starts to pay out more than it takes in, there will be a crisis — Social Security, you see, must stand on its own.

But the commission resorts to bogus accounting only to make the case for its ultimate objective: to convert Social Security from a defined-benefit system, which guarantees retired Americans a certain basic income, to a defined-contribution system, in which the unwise or unlucky can find themselves destitute in their old age.

Some analysts I know think Social Security will be converted to a defined-contribution system, not because it is a good idea but because the financial industry — which has enormous clout in our money-driven political system — has so much to gain from the conversion. I hope they're wrong. But if they are right, the fate of Enron's poor employees, victimized by a management team they thought was on their side, may truly be the shape of things to come.

Originally published in The New York Times, 12.4.01