By DAVID MOON, Moon Capital
February 17, 2002
In a small town in Arkansas, there is a hypothetical retired couple. He
is seventy-three years old and fishes or hunts almost every day. She is
seventy-two and volunteers at the local library. They are millionaires '
wealthy beyond their wildest dreams. They have given thousands of dollars
to local charities. Their children were the first in their family to
attend college. It all happened because in 1972, they went to work for a
small local retailer, Wal-Mart.
Under new rules being considered by congress, you can forever kiss the notion
of any future Middle America Wal-Mart millionaires' goodbye.
This past week, I saw an interview with a former non-management Enron
employee. (This is an actual person, unlike our hypothetical Wal-Mart
retirees.) At one point, this gentleman had over $300 thousand in his
401(k). His retirement plan is now worth slightly more than four
dollars. He wants someone to get his money back. The federal
government, a bankruptcy judge, Enron executives; he doesn't care who gives him
the money. He just wants what is rightfully his.
Somewhat uncomfortably, he does explain to the interviewer that he had
several options within his retirement plan. He freely chose to fully
invest his funds in his employer's stock, rather than the mutual funds or even
money market fund that were among his other choices. Until the collapse,
he saw his fate as similar to that of the mythical retired Wal-Mart cashiers: he
was going to be rich and his employer was the train he was going to ride up the
mountain of wealth.
If the Federal government is successful in limiting employees to investing
only 10 percent of their retirement plan money in their employer's stock, what
sort of lawsuit should they expect from the employees of the next Wal-Mart or
Microsoft? These individuals would have a claim that government
limitations prevented them from becoming millionaires. Will thousands of
future employees complain that they lost millions of dollars they would have
What about the ten percent of an employee's retirement plan that is
invested in company stock? If competition drives a company into
bankruptcy, will the federal government hold hearings and require a legislative
remedy? Would pension plan participants be allowed to invest 10 percent of
their funds in the stock of companies for which they don't work? What
about risky mutual funds? There are thousands of mutual funds that
declined more than 50 percent in 2001.
Who is responsible for a person's retirement planning? The
individual, his employer or the government? Social Security was originally
intended to be a safety net for indigent retirees ' not a primary retirement
plan. Self-directed 401(k) plans promised to allow employee control over
their own destiny. But the primary issue here is about property rights.
Once money is deposited into a self-directed, fully - vested 401(k) plan, to
whom do those assets belong? The participant, company or government?
If it truly belongs to the employee participant, the company should not be
allowed to prevent the sale of company stock ' and the government should not be
allowed to prohibit its purchase.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).