BPEA | 2005 No. 2

Are Empowerment and Education Enough? Underdiversification in 401(k) Plans

Brigitte C. Madrian,
Brigitte C. Madrian University of Pennsylvania, Aetna Professor of Public Policy and Corporate Management - Harvard Kennedy School, Research Associate - National Bureau of Economic Research
David Laibson, and James J. Choi
James J. Choi Yale University
discussants: Nellie Liang and
headshot of Nellie Liang
Nellie Liang Under Secretary for Domestic Finance - United States Department of the Treasury, Former Senior Fellow - Economic Studies
William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

2005, No. 2

AT THE END of 2000, current and former employees of the energy trading
company Enron Corporation held $2.1 billion in the firm’s 401(k) retirement
savings plan. Sixty-two percent of that money was invested in Enron
stock, then trading at $83 a share. In October 2001 Enron’s finances began
to unravel as its accounting improprieties came to light. Enron stock plummeted
over the next several weeks, and on December 2, 2001, the company
declared bankruptcy, rendering its shares worthless. Thousands of
Enron employees lost their jobs and a large fraction of their retirement
wealth simultaneously.