The most dramatic Enron news of late has shown former executives invoking the 5th Amendment or telling Congress that, gee, they hadn’t known anything was wrong. But the issue that’s probably most important in the long run for millions of Americans was addressed at a less-glamorous House hearing on 401(k) plans.

The Bush administration has proposed rule changes to address the systemic flaws that contributed to Enron employees’ estimated $1.2 billion in losses. At best, the president’s proposals are a baby step in the right direction.

His main proposal involves company stock held in 401(k)s. Enron, like many other corporations, made its matching contribution in company stock and required that employees hold the shares until they turned 50. The president would allow employees to sell their company stock after being enrolled in a plan for three years.

For many employees, this could solve the problem. In a typical plan, the employer’s annual match can be as large as 3 percent of the employee’s annual gross salary. With a three-year rule, a company’s restriction on sales would tie up only three years’ contributions totaling at most 9 percent of a year’s pay. The actual amount tied up would depend on whether the stock price had gone up or down.

This doesn’t seem so bad. Note that, bad as the Enron situation was, it was only partly due to stock-sale restrictions. Enron employees raised their risk by choosing to bulk up on the company’s stock with their own contributions as well money they were free to invest elsewhere.

Companies don’t need help

Testifying before the House Committee on Education and the Workforce, Labor Secretary Elaine Chao said a three-year rule would balance employee and employer interests.

But what legitimate reason does an employer or government have for imposing any restriction on employee sales of company stock?

Firms like to use their own stock for matching contributions because:

They get an especially good tax break for doing so.

It puts a large block of shares in friendly hands, reducing the risk of hostile takeovers.

It gives employees an incentive to help the company prosper.

It effectively takes shares out of circulation, bolstering the stock price by reducing supply.

What’s wrong with all this?

The tax advantages encourage companies to contribute their own stock when other investments might serve employees better.

It shouldn’t be federal policy to help companies stave off takeovers. Takeovers mean that shareholders have chosen a new management, usually because the old one wasn’t doing very well.

Employees don’t need stock-sale restrictions to have incentive to help a company prosper. Their incomes and careers are at stake. That’s good enough.

Hands-off approach

Tying up company stock to reduce supply creates an artificial prop for the stock price. Stock prices should be governed by a free market, not by gimmicks.

So President Bush has not gone far enough. Employees should be allowed to dump their company’s stock as soon as they get it. If the boss doesn’t want them to, he should run the company better, to make his folks hold onto the stock by choice.

In a related area, President Bush has opposed a proposal by Democrats to limit each 401(k) participant’s holdings in company stock to 20 percent of an account’s value. Bush says this unfairly inhibits employee choice.

Such a restriction is worth considering. But it’s foolish to turn a 401(k) into a crapshoot; 401(k)s are supplanting traditional pensions as the primary source of Americans’ retirement funds, and studies show that most employees are ill-equipped to make sound investing decisions.

A cap on company stock ownership may be a regrettable but necessary way to protect them from themselves.