It's Payback Time, or Is It?: An Argument to Apply Universal Heightened Standards to All Employee Stock-Based Individual Account Programs in the Post-Enron Era and Why Sarbanes-Oxley's Preventive Measures Do Not Adequately Protect Employee Investor Interests

Abstract

This Comment will attempt to argue for universal, uniform, enhanced protections for all EIAP participants investing in employer stock. It will first describe the major methods of deferred compensation in EIAPs, namely "traditional" pension plans and employee stock ownership plans, exemplified and illustrated by several companies currently involved in multiple litigations regarding securities and ERISA violations. Next, the statutes and bases for relief will be presented, focusing on the rights of recovery for employee investors in the various compensation and pension programs in the pending litigations and beyond. Prior statutory remedies under securities laws and ERISA have not provided comparable relief to each of the two main categories of plan participants, with the securities laws providing the more wide-reaching and accessible theories of recovery for qualifying programs. Moreover, defendants have argued, sometimes successfully, for the application of one set of statutory remedies to the exclusion of the other, where in all likelihood the law should expressly permit multiple bases for recovery, or at least not unnecessarily limit plaintiffs' options, in cases where employee investors fall victim to fraud at the hands of their own companies and their directors.

This Comment will next explain that while commentators have argued for the application of federal securities laws to certain employee investment plans such as ESOPs, such imposition would still only provide protection for a limited number of employee investors, nevertheless frustrating the purpose of ERISA by excluding a significant percentage of employees from much-needed enhanced regulations and protections. The common thread of employer securities utilized in EIAPs will form the basis of the argument for a more uniform, or at least equalized, system of relief and protection for all employees, specifically suggesting across-the-board imposition of provisions similar to the improved securities laws to safeguard against stock fraud in addition to a more expansive reading of ERISA as suggested in the Great West dissent so as to promote the true spirit of employee benefit programs.

This Comment will further demonstrate that the provisions in the Sarbanes-Oxley Act of 2002, which supposedly set forth new guidelines to avoid future debacles, have presented only a starting point from which to work towards complete protection for all employee plan participants. Sarbanes-Oxley predominantly speaks to securities fraud recovery, providing safeguards against bankrupt fiduciaries and requiring more comprehensive disclosures. But ERISA remains largely unaltered, leaving the majority of employer stock account holders with little improvement. Thus, the Act instead only meets the needs of employee investors half way, because while ESOP participants and others with standing under the Securities Acts have gained even more protection, pure ERISA pension holders have not made any substantial remedial gains with the Act. Finally, the conclusion will suggest certain adjustments and predict the likely outcome and effects of the existing legislation on employee investment plans and the financial landscape in general. E° The question will remain, however, as to the extent to which the legislature and the courts are willing to afford all EIAP investors, regardless of whether opting for ESOP "investments" in the corporation or traditional pension plans deferring compensation until retirement from company service, the greater security measures needed to safeguard their valuable financial, labor, and emotional investments.