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 The slide in oil prices to their lowest levels in over a decade
wiped out several billion dollars of retirement wealth in the energy
sector in the past year. The losses may prove temporary for
companies that successfully navigate the crisis, but tens of
thousands of employees of struggling firms may see much of their
nest eggs gone for good.
In Oklahoma and Texas, workers are delaying retirement plans,
surrendering trucks, cars and land in personal bankruptcy cases, or
just praying oil prices will recover.
"I just didn't see it coming," said John Thompson, 57, who was laid
off in February from Oklahoma City-based SandRidge Energy Inc.
SandRidge shares, which peaked above $65 in 2008, are now worth 10
cents apiece. "Because of this, I'm not retiring any time soon."
SandRidge did not return messages seeking comment.
Almost without exception energy company 401(k) plans offered at
least 10 different investment alternatives to company stock, their
plans show.
Yet company reports and interviews with more than 20 current and
former employees at independent energy firms show many employees
have not taken advantage of opportunities to switch out of company
shares.
Maureen Nelson, who retired from Chesapeake Energy Corp <CHK.N> in
2013, said she lost an estimated $100,000 as she watched the
company's shares plunge in value.
Inertia and a strong faith in company leadership played a role in
holding on to company stock, but so did company policies.
Many energy firms continued to match employee contributions with
company stock, even as most large U.S. companies stopped the
practice after the Enron debacle, according to several corporate
benefits consultants.
The energy industry followed the lead of heavyweights such as
Chevron Corp <CVX.N> and Exxon Mobil Corp <XOM.N>, which for years
provided matching contributions in company stock in worker 401(k)
retirement plans while also funding separate defined benefit pension
plans for them.
DOUBLE IMPACT
Smaller companies could not afford to do both, but they typically
matched employee contributions in stock. And energy workers often
plowed some or most of their own contributions into company stock,
benefits consultants said.
"It's not prudent investing," said Lou Harvey, chief executive of
Boston-based financial research firm Dalbar Inc. “But employees tend
to clamor for company stock.”
Typically, workers at larger energy companies would have 20 percent
to 60 percent of 401(k) assets in company stock, according to a
Reuters analysis of such holdings for more than 400,000 employees.
By contrast, the average U.S. 401(k) plan has about 7 percent of
assets in company stock, according to Washington D.C.-based
Investment Company Institute.
At Chevron, more than 40,000 participants in its 401(k) plan held
$8.9 billion, or 47 percent of investment assets, in company stock
at the end of 2014, according to the latest annual report. (Graphic:http://tmsnrt.rs/1RwkqYB)
Chevron stopped matching in company stock last year for better
diversification, spokeswoman Melissa Ritchie said. Exxon stopped new
stock contributions after 2006. Its shares still accounted for $12.9
billion of the 401(k) plan's $22.3 billion in assets in 2014. Exxon
declined comment.
When Texas-based Enron filed for bankruptcy in 2001, employees
suffered a one-two punch - they lost their jobs and much of their
savings because nearly two-thirds of their retirement assets were in
Enron stock.
After Enron's collapse, companies successfully lobbied Congress
mostly against proposals to limit company stock ownership in 401(k)
plans, fearing billions of dollars of their shares would be
offloaded to meet the caps.
“Caps were a bridge too far for companies,” said Sheila Bair, former
chair of the Federal Deposit Insurance Corporation and a U.S.
Treasury official who worked on President George W. Bush’s 2002 task
force on retirement security.
Still, publicly-traded companies have revamped their retirement
plans to make them more balanced, even imposing own limits on
company stock ownership, said Rob Austin, director of retirement
research at Aon Hewitt.
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FOLLOW THE LEADER
Diversification has yet to reach much of the energy sector, though.
Oil and gas workers had more than $32 billion in company stock in
their 401(k) accounts, or about 38 percent of plan assets for the 40
companies in the S&P 500 Energy Sector Index, according to 2014
annual reports filed with the U.S. Department of Labor. Since then,
the index has lost 21 percent. Smaller independents have been hit
about twice as hard, on average.
With about a third of his 401(k) plan in company stock, retired
Chesapeake geologist Keith Rasmussen, 61, looks to sell land he owns
in Oklahoma and Idaho to shore up his depleted retirement funds.
Chesapeake, once a shale boom darling, now trades 84 percent below
mid-2014 levels, hurt by heavy debt and prolonged slump in natural
gas prices. Nearly 8,000 participants in its 401(k) are exposed to
the reversal of fortune, holding 35 percent of the plan’s $615
million in assets in company stock at the end of 2014, according to
the latest annual report.
Some current and former Chesapeake employees said their decisions to
hold onto stock were based partly on their reverence for Aubrey
McClendon, its legendary former chief executive, who died in a car
crash in early March
"You could be the biggest skeptic in the world, and you listen to
him in a room for 30 minutes, and you're ready to hand him all your
money," said Ginni Kennedy, 58, who retired from her engineering job
at Chesapeake in 2013. "I had faith that he'd continue to be able to
pull those rabbits out of his hat."
Chesapeake, which declined to comment, stopped matching in company
stock last year.
Many workers are now paying a heavy price for failing to heed
warnings about concentration risk.
“Our bankruptcy work has quadrupled over the past six months,” said
Roger Ediger, an Enid, Oklahoma lawyer who handles personal
bankruptcy cases. “Most of them are energy related.”
A U.S. Supreme Court decision in 2014 underscored the risk of
offering company shares in 401(k) plans. Its decision made clear
that company stock was not automatically a prudent investment.
The ruling also highlighted the potential conflicts of interest for
companies in their role as fiduciary of 401(k) plans.
“It was a wake-up call to companies,” said Bill Ryan, chief
fiduciary officer at Evercore Trust, the largest U.S. third-party
fiduciary.
At Fort Worth, Texas-based Quicksilver Resources Inc <KWKAQ.PK>,
Evercore Trust took a rare step to block further employee investment
in the company’s 401(k) plan in October 2014, as fiduciary for the
stock plan. The move preserved some value, but not much, given that
by the time the stock fund was liquidated company shares have
already fallen to about 50 cents from about $3.50 in 2014. Equity
investors lost virtually everything five months later when
Quicksilver filed for bankruptcy protection.
Bair, now a college president, said companies with heavy stock
concentrations in their 401(k)s should follow peers that have caps
in place to protect workers and avoid government mandates.
“If we have another failure like Enron, government regulation may be
coming.”
(Reporting By Tim McLaughlin and Luc Cohen; Editing by Tomasz
Janowski)
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