Enron collapse affects school pension funds

But employees' retirement plans remain financially healthy

2/5/02 – Although the financial collapse of Enron Corp. has cost union and government pension systems at much as $1.5 billion in investments, local school boards can reassure teachers and other school employees that their retirement plans remain financially healthy.

State rules requiring diverse portfolios–along with the vast investments held by state retirement systems–mean that Enron's Dec. 2 bankruptcy will have no impact on current or future school district retirees, say pension plan executives.

"We spread our risk across thousands of companies," says James Mosman, a California state pension official who this month becomes executive director of the National Council on Teacher Retirement. "If any individual company goes sour, it has a relatively minimal impact on our pension plans."

To put the losses in perspective, Missouri's public school retirement system lost $22.8 million when Enron's stock plunged in value. But that loss, while substantial in monetary terms, represents one-tenth of 1 percent of the retirement system's $21.4 billion value.

"Over the last five years, the system has earned about $35 million a week in interest," says Craig Husting, chief investment officer for the retirement system.

Such reassuring news doesn't mean the losses have gone unnoticed by state officials. The value of Enron stock fell from a high of $90.75 in 2000 to below 25 cents after news of Enron's financial troubles.

The cost to public pension funds was steep: The Florida state retirement system lost $325 million, while six of California's largest public pension funds lost a combined $250 million. Also reporting big losses: Georgia, $127 million; Ohio $115 million; New York City, $109 million; and Washington state, $100 million.

The reported corporate practices preceding Enron's collapse are appalling, says James Parker, executive director of the Washington State Investment Board.

"If a company does its best, and it doesn't work out, that's one thing," he says. "But when there are all these questionable things going on, you hope to get some of the money back."

That's exactly what some state officials are trying to do. Several state attorneys general, along with a number of independent pension funds, are pursuing what could become the largest class-action securities lawsuit in U.S. history. So far, dozens of lawsuits have been filed against Enron by a variety of claimants.

"We owe it to these public servants to get back as much of their money as we possibly can," Ohio Attorney General Betty D. Montgomery said when she announced plans to pursue legal action. The Ohio Public Employees Retirement System and the State Teachers Retirement System lost a combined $114.5 million.

Another target for litigation is the accounting firm Arthur Anderson, which audited Enron's financial statements. Accused of overlooking bookkeeping irregularities by the corporation, the company also is under investigation by state and federal authorities following news that Anderson employees shredded Enron-related documents.

Yet, despite the flurry of legal activity, some states are opting for a wait-and-see strategy. Although many agree that corporate officials need to be held accountable, the financial and manpower demands of such ambitious litigation have convinced them to let others take the lead.

In any case, it's debatable whether public pension funds can recover any of the lost funds. "The courts are going to have to settle on where the [remaining] company assets go, and many believe employees in Enron's 401(k) plan may have first grab," Mosman says. "What's left of the pie . . . is not going to be a great deal."