A big bankruptcy raises big concerns

The financial fallout from the Enron debacle continues to mount.

At first, shareholders were hit, as the value of Enron stock plummeted to the point where the stock is now worth more as a collector's item than as a financial security.

Then, creditors found that Enron could not make required payments on loans or for receivables. Company employees watched the value of their 401(k) retirement plans fall through the floor.

Finally, pension plans far outside Enron - teacher's retirement plans, municipal and state funds, for example, that invested in the energy company - lost millions of dollars.

For those concerned how the Enron collapse might affect them, consider this primer:

Enron is not the only major financial failure of the past decade. What makes it different?

For one, it's the largest corporate failure in United States history in dollar terms. But more important, it involves conduct that raises questions of criminal behavior, including shredded legal documents, executives profiting at the expense of other workers, unusual accounting practices, and mysterious business entities carried off the main corporate books.

Still, it is certainly not the only failure in which employees have lost large amounts of savings. The 1990s included a string of bankruptcies and more than a few near misses. In just the past few years, hefty market losses have clobbered employees at such prominent firms as Dell Computer and Lucent Technologies.

What is the main lesson investors should learn from the Enron collapse?

Don't make investment decisions based on an emotional attachment to any company, especially the one you work for.

Enron was considered one of the hot-shot financial entities of the 1990s. As a result, many employees there bought company stock with the money they contributed to their 401(k)s.

Enron workers also received even more shares because they had no alternative. Their "company match" came only in the form of Enron stock.

But in retrospect, the company was built on smoke and mirrors. As the share price tumbled, workers were not allowed to sell the stock - unlike Enron's corporate executives, who could, and did, sell millions of dollars worth of stock. Employees also couldn't sell matched shares until they turned age 50.

Will major government-led reform efforts keep other firms' employees - and investors in those firms - safe from losing their retirement funds?

Some reforms are possible to help protect retirement plans, analysts say, including steps to limit the amount of corporate stock in matching funds, as well as expanded rights for workers to cash in their company's stock.

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