As was the custom in most industries, Acme offered a voluntary investment plan that was designed to provide benefits for workers, both hourly and salaried. Participants allowed Acme to deduct as much as 25% of the gross amount of their wages, which was then invested in one or more of a family of mutual funds. The risk profiles for the various options ranged from very aggressive to very conservative.
For the first three months after enrollment in the program, the funds were held in a deferral account. The 90-day term, equivalent to a new employee’s probationary period, applied equally to longer-term employees who elected not to sign the plan enrollment documents when first hired. During the first three months, any earnings the employee’s account accrued weren’t credited to the account — it was deferred. On the 91st day, subsequent earnings went into the employee’s account.
The Acme investment plan included a provision that allowed the whole investment account to be forfeited to Acme should the employee either quit or be terminated for cause during the first three years of participation in the investment plan.
For the past dozen years, Ellis Dechrip had been a divisional vice president in charge of Acme’s line of agricultural products. The job paid extraordinarily well, considering the effort he needed to expend. He was a good delegator and his staff had a talent for making things happen that achieved successful outcomes. He and his family lived well, perhaps extravagantly, by contemporary standards. But, Ellis felt trapped by the golden handcuffs — he earned much more money at Acme than he could ever receive if he changed jobs.
As the national economic conditions began their descent into the cellar, Ellis suddenly felt a sense of urgency about his future. Also, he was privy to certain corporate information that made him question whether Acme could survive even a moderate financial or market upset. This uncertainty prompted his enrollment in the employee investment plan 18 months ago, even though Acme stopped making matching contributions. Despite contributing the maximum amount the investment plan allowed, the market volatility had reduced his total portfolio to only about $170,000.
Acme’s upper management also was concerned about corporate survivability and initiated aggressive cost-cutting measures. Every pay period, there were layoffs at every level in the company, deferred maintenance in the plant, as well as eliminating contract workers and consultants. Acme needed the fastest possible ways to conserve cash.
As a result, morale was low among those left standing. Nobody had assurance that they wouldn’t be among the next group to get pink-slipped. Another consequence was that the remaining employees had new assignments and much more work to accomplish, but now at a more frenetic pace. Tempers were short, mistrust was high and confusion constant. Teamwork vanished from the environment.
Much of Ellis’ work now involved implementing the cost-cutting measures emanating from the boardroom. Despite his now much-longer work week, he realized that he was falling behind in his execution of those top-brass expectations. With so much more work landing on his desk, things fell into cracks. He found that he wasn’t able to complete everything in a timely manner. Nor was he able to devote sufficient attention to any one project. When one of his ideas for cutting costs actually turned into an expensive mistake, he was fired for cause.
When Acme refused to give him the balance in his investment account, Ellis initiated a class-action law suit on behalf of dozens of similarly situated former employees. In it, he argued that the investment plan was illegal and that the requirement to forfeit his direct contribution to the plan violated state labor law.
How could this situation have been avoided? When does a company have the right to keep an employee’s payroll deduction placed in an investment plan? Is it ever wise to invest through an employer’s plan? Should only financially savvy people get involved in employer-based investment plans? What sort of due diligence is practical for an employee exploring an investment plan? How can those in similar situations cope with distressing economic losses in their accounts?
A maintenance consultant says:
Acme could have done a number of obvious things. It needs to stay profitable and the economy needs to remain sound. Acme must do the right things to survive. Ellis should have gone beyond just taking boardroom cost-cutting ideas by getting the people on the shop floor directly involved in cost-reduction measures. Any cost-cutting measures emanating from the boardroom can be dangerous. It’s a bad sign if those measures banish teamwork from the work environment. Fear used as a motivation factor won’t serve as motivation for finding new ideas and more productivity from remaining people.
A company has no right to keep an employee’s payroll deduction placed in an investment plan. In my opinion, the plan was illegal. To have Ellis start the program, get fired and forfeit $170,000 also is unethical, even without looking it up in the law books. Investing through an employer’s plan makes sense if the plan is administered by a sound investment firm and if employees have complete visibility of their account status. But as we’ve experienced personally, your account’s market value can decrease by 50% very quickly.
One doesn’t need to be financially savvy to get involved in employer-based investment plans. But, employees should clearly understand the plan’s fine print and, most importantly, the risk involved. One should read the agreement carefully and get legal advice if there are questions. Research the plan administrator carefully, as well as the specific funds the money is going into.
Ralph W. "Pete" Peters
The Maintenance Excellence Institute