“And you said you cared!"
by Koon Mei Ching

The past months have been one of earth-shaking events, and I mean that in an entirely literal sense: the tragedy of 11 Sept, the war in Afghanistan and of course, the crisis in corporate confidence that began with Enron.

Enron’s effects reverberated throughout the world. It forced us to face up to the reality of a selfish society that looked out for number one. It also forced us to realise that our actions have consequences on a larger entity. With reference to corporate confidence, it forced us to question the idea of employer accountability and responsibility, and how it affects our future.

Enron, WorldCom, Arthur Andersen, et al, have come to represent a new type of villainy - one where corporate executives cashed out and loyal employees lost both their jobs and retirement savings. We live in corrupt times, a time where the line between opportunity and crime have become so blurred that a league of management have closed both eyes in pursuit of greed. Business schools taught its students about creating wealth for its stakeholders - including its employees. With more and more companies being investigated for accounting fraud, one begins to ask who the actual stakeholders are, and what are the consequences.

For every man and woman who believed in the espoused corporate value that "company employees are the most valued of assets and resources," there is a sinking feeling that we may instead be betrayed.

So, what was going on?
A recent Financial Times survey reported that the top executives and directors involved in the biggest American business collapses - including Enron, Global Crossing and WorldCom - amassed billions in salary and share sales when the market was booming. In three years, they grossed close to US$3.3 billion (RM12.54 billion) before their companies went bust, wiping out hundreds of billions of dollars of shareholder value and nearly 100,000 jobs. With even more top-notch companies being added to the list daily, one wonders what the actual damage incurred by this elitist white-collar crime really is. One thing is for sure: can you really count on your employer to take care of you?

What about the every man and woman?
For those of you who trusted your management team to be responsible and accountable in its dealings, finding out that the company has cooked its books resulting in job losses and the quick dissipation of your stock options or contribution funds is a bitter pill to swallow.

Enron collapsed into bankruptcy and took along with it the retirement savings of thousands of employees. Its former employees are now filing motions against the company to pay additional severance to terminated employees, amounting to approximately US$140 million (RM532 million) in discretionary bonuses. WorldCom, the second-largest long-distance telephone operator in the US (employing over 73,000 employees in over 100 countries) and the world's largest provider of Internet connections, cut circa 17,000 jobs earlier this year. Arthur Andersen (for its part in the Enron debacle) have shaved off about 7000 positions in the US and lost businesses in its global branches. But job loss isn't the only concern. Just as many of us do, employees who opted for employee contribution schemes (the employee makes a contribution into a retirement fund that is often matched by the employer) or stock options now find the savings vanished into thin air.

Company stock in the beleaguered companies has plummeted up to 90% from their original value. Hundreds of millions in retirement plans have been decimated to nothing. Further, with the state of the economy being what it is, the funds invested in stock are proving just as volatile.

Everything's changing, ladies and gentlemen.

Thinking about yourself
All that has taken place has cause to make us rethink our retirement portfolios. Are my assets safe? Will I have enough to live on? Can I trust my employer to be honest about company stock?

Maybe before, we could sit back and say, heck, my company's stock options/KWSP will take care of itself. But as corporate scandal uncovers, as the stock market tumbles and as global companies are increasingly opting out of employee contribution plans, it might behoove you to start thinking now about your retirement portfolio - whether you are 25 or 50.

The public should make themselves aware of several things: 1) that defined-contribution plans are not insured; 2) that investing in company stock is not necessarily a good thing; and 3) that employers may not always have their employees’ best interests in mind when it comes to managing employee contribution plans.

What do I do?
Even some HR departments find the details of employee retirement planning a haze: let's not talk about the employees themselves! And the problem is not limited to employees at the lower end of the pay scale. Even PhDs may not understand the difference between a defined-benefit and a defined-contribution plan.

Many employees erroneously believe investing in their own company stock to be safer than investing in a diversified stock fund. The average investor is often overly optimistic, expecting a 15% return in annual gains from the stock market, a level that is way above the average of about 10 percent a year. The lack of knowledge about risk and return is worrying. Furthermore, although the key to surviving stock market ups and downs is having a diversified portfolio, it has been shown in the United States that the average person there is invested in only 3.3 funds out of a possible 8,282 mutual funds (Vanguard Group study).

If you're ready to start, take on the task of demystifying the retirement system by speaking with your HR manager about your corporate retirement plans.

Find out what happens to your contribution in planning different scenarios - stock market crash, discharge from the company, leaving the company, etc. Is there a vesting period for company stock options? How much of company stock are employees' pension plan/fund required to hold?

Should there be enough interest in this topic, request that the HR department make a presentation on the topic, or suggest they invite an external financial advisor to talk about the issue to all employees. Essentially, employers do have the burden of ensuring substantial efforts have been made to clarify how they support your corporate retirement/pension funds or how the company stock option plan works.

On your own part, you should try to educate yourself on diversity and asset allocation. You can speak to financial advisors from your local bank on unit trusts, mutual funds or check out their corporate web page for information. Look for website resources on how to plan for your financial future. Speak to people with experience in managing their retirement funds.

Who do you trust?
The beginnings of a system revamp are being explored as a means of checking on this infectious greed. All being said, I would like to think most companies and their management are seeking the best for their employees and stakeholders. But, perhaps what my mother once said to me is the advice I shall leave you with: "Rely on no one but yourselves."