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[P]
There's trouble at the mill

By vambo rool in News
Wed Dec 19, 2001 at 01:29:24 PM EST
Tags: etc (all tags)
/etc

Aaron Feuerstein owns and runs Malden Mills, the makers of Polartec fleece. In December 1995, right before Christmas, a massive fire nearly destroyed the whole place. But Feuerstein continued to pay all of his workers their full wages, refusing to lay any of them off, while the mill was being rebuilt. He felt he owed it to his employees since they had always done their best for him and for the mill and for this, he became a case study in how to treat employees. Any other corporation would have just shut the place down and moved to Indonesia or China. Feuerstein stayed, rebuilt and reopened.

But now Malden Mills is in trouble.


They were forced (largely by GE Capital) to file for Chapter 11 bankruptcy protection. Insurance didn't cover the costs to rebuild or to pay wages and now the lenders are moving in for the kill and they can use your help.

In the US, there are at least two kinds of bankruptcy, Chapter 7 and Chapter 11. Chapter 7 is complete liquidation; the company has ceased to be, it is no more, it has rung down the curtain and joined the choir invisible. Many dot bombs fall into this category (send.com, wine.com, pets.com, 3DFX, &c, &c). Chapter 11 is reorganization and is far more common. Chapter 11 allows a company to restructure its debts and obligations which will allow it to continue as a going concern. It's a little like debt consolidation. If you have debt at high interest rates, you can consolidate it and pay it off with a new loan at a lower rate. That way, everybody gets paid (although not as much as you might have gotten under the original agreement) but everybody gets something and the company can survive.

The big difference in this case is that Malden Mills occurred much this debt by rebuilding the destroyed mill in the original town and keeping paychecks coming to the Malden Mills employees while the construction was underway. Contrast that with two other recent Chapter 11 filings. In the first, the company first cut off all health insurance and retirement funds then paid massive bonuses to top executives. In the second, currently the subject of Congressional hearings, questionable deals and who knows what else brought on a total meltdown of the company and again, top executives were bailing out and others got huge bonuses while employees and retirees were forced to watch their life savings melt away and careers come to a sudden halt. (One man who testified before the Senate yesterday (12/19) had his entire retirement savings wiped out. Over the course of a 30+ year career, he had acquired over 16,000 shares of stock which, before the fall, was worth around $1.3 Million. At close of business yesterday, that 16,000 shares was worth about $8,000.)

So, all you out there who are so quick to condemn overseas sweat shops, all those who are outraged at callous and cruel "big bad corporations," and are quick and eager to put them in their place, here's a chance to support a business that does the right thing, whatever the cost. That cost has been high and they could use some support. Employees are giving up all their paid holidays through 2002 to help get the company back on its feet. What can you do to show you support this sort of corporate responsibility?

Buy some fleece. Buy some products made with Polartec. It's great stuff.

Everybody can use something warm! :>

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Related Links
o Malden Mills
o Polartec
o massive fire
o Feuerstein continued to pay all of his workers
o he became a case study
o Malden Mills is in trouble
o they can use your help
o Chapter 7
o Chapter 11
o complete liquidation
o the first
o company
o cut off all health insurance and retirement funds
o paid massive bonuses to top executives
o the second
o currently the subject of Congressional hearings
o top executives were bailing out
o others got huge bonuses
o forced to watch
o life savings melt awa
o careers come to a sudden halt
o giving up all their paid holidays
o Buy some fleece
o products made with Polartec
o Everybody
o Also by vambo rool


Display: Sort:
There's trouble at the mill | 54 comments (53 topical, 1 editorial, 0 hidden)
Interesting.... (3.00 / 6) (#2)
by Mephron on Wed Dec 19, 2001 at 11:55:25 AM EST

A company does the right thing for its people and gets screwed for it.

Welcome to the 21st Century Economy, looks like. Still, massive goodness to the guy that runs the company for taking the shot to the balls that he must have taken for doing it.

That's what I thought too. (4.00 / 2) (#3)
by Lost In A Dream on Wed Dec 19, 2001 at 11:57:42 AM EST

I can't think of any company I worked for that would do that. Some of them may have taken upper management to another location with them, but all employees beneath the top two to three levels would have been out in the cold from day one. It's kind of sad that things aren't working out better for them. I wish I had the ability to make a bigger difference, but it's time for some new sweatshirts and fleeces anyway. :-)
________________________________
Armaphine - Screw death warmed over. I currently look and feel like death that had a couple of warm rocks thrown at it.
[ Parent ]

the right thing (none / 0) (#43)
by mattpfeff on Thu Dec 20, 2001 at 05:19:12 PM EST

The company more tried to do what was right for its own interests, I think. Feuerstein gambled that he could rebuild the mill and keep his labor base. He was wrong, but not too far off target.

The important question isn't, should he be rewarded for trying to do this. The question is, is it a good use of money to support this company, and help it recover from its bankruptcy. The answer, I think, is yes, but not because we owe Feuerstein anything for being a "good guy", but simply because the company is valuable and worth keeping alive.

[ Parent ]
Government Aid (1.16 / 6) (#4)
by natael on Wed Dec 19, 2001 at 12:12:51 PM EST

This might be covered in one of the many stories the author linked to, but the last update I heard on the news was that ea

"Have been unavoidably detained by the world. Expect us when you see us." - Stardust

Scoop Bug? (4.00 / 4) (#5)
by natael on Wed Dec 19, 2001 at 12:19:35 PM EST

For some reason scoop cut off most of my message. I previewed it and everything looked fine so I don't know what happened. Here is the original message in hopes it will go through this time.

This might be covered in one of the many stories the author linked to, but the last update I heard on the news was that early this month Mills management gave a tour of the factory to several government officials.

I believe the plan was to bail out the company with a donation or give them an interest free loan, depending on how much money they could free up from the budget.

"Have been unavoidably detained by the world. Expect us when you see us." - Stardust
[ Parent ]

Quite possibly true (4.00 / 2) (#6)
by vambo rool on Wed Dec 19, 2001 at 12:25:52 PM EST

I haven't heard that story, but I wouldn't doubt it. It does say in one of the stories that the state (Massachusetts) has reduced by half the amount of money Malden Mills is required to bank against Worker's Comp. claims and the local Reps and Senators are working to get the military to buy their stuff from MM rather than from a company that outsources all its production to China.



[ Parent ]
umm (3.71 / 7) (#7)
by spacejack on Wed Dec 19, 2001 at 12:40:53 PM EST

This is basically the same thing I've seen happen to IT companies during the dot-bust: pride keeps the company from laying off employees, and payroll bankrupts the company. In fact, it just happened to a 20-year old media company I know of -- they never laid anyone off in their entire existence until last year. Unfortunately, they didn't lay enough people off soon enough. Otherwise, they'd probably still be in business.

Sure, if it's a company where everyone is tight and freindly, it's a really tough thing to do. But either the company's in it to survive or not. That's capitalism, baby. Love it or leave it.

One difference (4.50 / 4) (#9)
by vambo rool on Wed Dec 19, 2001 at 01:16:19 PM EST

I think there's one basic difference in this case, however. In this case, the debt was brought about by a catastrophic event, not a market downturn. MM is a thriving company. They have a good product, and are generally profitable. They are hurting for two basic reasons: 1) They lost market share from being out of commission for so long during the rebuild and 2) they have a crushing debt incurred trying to rebuild after the fire. IMHO, they have a superior product and they can regain the market share if they can get back on their feet. The smartest thing to do, from a purely capitalistic, profit motive point of view, would have been to close the mill and move to China or Indonesia where you can pay labor slave wages and boost your margins to obscene levels. That's what others do.

There is more to life, and to business, than just pure capitalistic ROI and I think Feuerstein deserves to be helped out as much as possible.



[ Parent ]
Put your money...? (4.00 / 5) (#10)
by Anatta on Wed Dec 19, 2001 at 01:42:08 PM EST

If you think investing in Malden Mills is a good move and will lead to profits down the road, shouldn't you invest? And if you think they're a good bet for further profits, will some VC somewhere also think they're a good bet and put some money into the pot?

I can't say I'm angry at Nike for giving high wages to workers in 3rd world countries (what you call "slave labor") but as anyone who knows anything about business knows, in order to pay the employees, a company has to make money. And in order to make money, one needs to make sound business decisions.

It may not be all about ROI and ROE, but if you don't have either, you don't have funds to pay workers or to make products.

Look at Ben & Jerry's, a company that once had a policy that the CEO could only be paid X times as much as the lowest paid employee (I think it was 5 times)... when the company started to do very poorly, it needed a new CEO... but couldn't find one willing to work for very little money, so it had to get rid of that company bylaw because the company knew it could do better without that policy but still in business than with that policy but bankrupt.

Believe what you will about corporate social responsibility, but being socially responsible at the expense of revenues and profits is invariably bad policy for all those involved, including employees and those the company is trying to help.
My Music
[ Parent ]

Investing (5.00 / 2) (#11)
by vambo rool on Wed Dec 19, 2001 at 02:21:24 PM EST

Malden Mills is a family owned company, so there is no way to invest in it other than to buy their products. They've also been around since 1906, so VC money is not what they need. VCs charge about 40% interest (and usually a % of ownership) and even the most uncreditworthy but established company can do better than that on the open market. It's only if you have no credit history whatsoever, and no product due for quite some time, that VC money is necessary.

A fire has nothing to do with making "sound decisions." They are not in this situation because of bad decisions unless you consider it a bad decision to rebuild the mill.

Ben & Jerry's had their policy until they became owned by Unilever. It was Unilever who decided that B&J wasn't making enough money.

But, as I said before, MM has a good ROI and ROE. If it weren't for the catastropic event that put it in the situation it's in now, they'd be doing just fine. If they were tanking for mismanagment or lack of foresight or just general ineptitude (like where I worked years ago), I'd say let 'em go. This is different.



[ Parent ]
In my heart... (4.16 / 6) (#12)
by chrome koran on Wed Dec 19, 2001 at 02:22:33 PM EST

it's easy to agree with you. In my head, it's not.

Permit me to make an admittedly strained analogy. You are in a lifeboat with 11 other people who managed to get aboard as a ship sank. The boat is only designed to hold 12 people. A woman and her two children appear within reach and you bring them aboard raising the total to 15 occupants and making the boat perilously unstable. But you can make it, you know you can. Just then, a family of four appears within reach and you must make a decision:

  • You can jump into the water and make room on the lifeboat for the two (smaller than you) children
  • You can turn all four of them away
  • You can try to bring all four of them aboard and risk capsizing the lifeboat and leaving everyone in the water

    If this is a movie, you say something emotional like "Either we all make it to safety, or we all go down together trying!" In real life, I don't think you have the right to make that decision, especially if the odds are bad. But no matter what, if you make the decision to let them all aboard and the boat capsizes, there is no room for recriminations.

    Much as I admire the sentiment that drove the company's original decision, the business logic is flawed. If he had laid everyone off, they would have had unemployment benefits for at least a while, and he would have the opportunity to rebuild and go forward from a position of strength, hiring every one of those people back at a later date. He chose to overload the lifeboat and now it looks like everyone will drown because he wasn't able to keep the boat from sinking. I don't know if he miscalculated the funds he would need, or if he got screwed on building costs, or if he was just dumb. But in any case, neither he, nor the employees he kept on salary have any room for recriminations. If they (or you or me) believe that what they did was right, regardless of whether it made fiscal sense, then you need to suck it up, find another job, and be comforted by the fact that you did the right thing. No other solace exists in this scenario.

    [ Parent ]

  • Analogy (4.00 / 7) (#14)
    by vambo rool on Wed Dec 19, 2001 at 02:43:01 PM EST

    Your analogy is flawed in this way. The company is actually a lifeboat designed to hold 12 people that is, in fact, holding 12 people. But it was bitten by a shark and now has a hole in the bottom. What's needed is a bit of external help to remain afloat until the hole can be repaired. Once the hole is repaired, they're off and sailing away nice and happily.

    Frankly, I'm a little surprized at some of the reaction here. It amazes me that people actually think that if you suffer a catastrophe, you should be put down because of it. Is it that this is a company and is therefore somehow evil and deserving of death in spite of the 4000 people that the death will take with it? I mean, the company has proven they can support all of their employees at full union wages if it weren't for the disaster.

    If this were an earthquake and not a fire, would the company be any more deserving of help? If someone had crashed a plane into the mill, would it then be acceptable to help?



    [ Parent ]
    why should I help anybody? (2.75 / 4) (#17)
    by alprazolam on Wed Dec 19, 2001 at 03:05:35 PM EST

    What's in it for me? Your assumption that people deserve anything other than suffering and mistreatment is at this point unproven.

    [ Parent ]
    Sight (4.50 / 4) (#22)
    by vambo rool on Wed Dec 19, 2001 at 04:10:26 PM EST

    What's in it for me?

    Yes, of course, how silly of me. That should certainly be the single, overriding concern of every decision made. What a sad, cruel world you must live in.



    [ Parent ]
    This is where I disagree with you... (3.50 / 2) (#19)
    by chrome koran on Wed Dec 19, 2001 at 03:31:21 PM EST

    Insurance didn't cover the costs to rebuild or to pay wages...

    If my house burns down, and I don't have insurance coverage on it (for whatever reason - loophole in policy, I started the fire on purpose, etc.) and I lose everything I have invested in it - equity, furniture, appliances, clothing, etc. - can I expect the people from this mill to come restore it all to me? Can I expect anyone to come restore it all to me? No. Everyone would say that it is my fault because I didn't have proper homeowner's insurance. And they would be right. I probably took a risk and got cheaper coverage to save myself money in the short term. I rolled snake eyes, and I lost.

    Excuse me, but here is a company that doesn't bother to take out proper insurance on its premises or its assets. Bad luck - they have a fire. They rolled the dice by not taking out the appropriate coverage and they lost. How is their fiscal irresponsibility my problem? You would have me feel guilty because they kept paying their employees, but I don't because (based on the very sketchy information you provided) this is all the result of poor decision-making on their part to begin with. NO ONE has a 4000 employee business and fails to have proper coverage on its facilities and assets. That is downright stupid. I do not feel any need to bail them out of this situation.

    [ Parent ]

    Expectations (4.00 / 2) (#21)
    by vambo rool on Wed Dec 19, 2001 at 04:06:29 PM EST

    Can I expect anyone to come restore it all to me?

    Expect? No. But I would certainly hope that you don't live in a place so heartless and cruel that they would just let you rot on the side of the road all the while claiming it was your own fault.

    BTW, they had insurance. And it would have completely covered rebuilding somewhere cheaper.



    [ Parent ]
    bzzzt. (4.00 / 2) (#24)
    by CodeWright on Wed Dec 19, 2001 at 04:50:54 PM EST

    Then they didn't have the right (i.e., sufficient) insurance. Anything can be insured to any extent, provided that the premiums can be met (underwriters will assess the likely risk and quote a price that they feel will provide them a comfortable chance of profit -- that's what 500 years of Western Civilization's actuarial research are for).

    If the company was unable to rebuild with the claims received from their insurer, then they are either (A) insufficiently insured, or (B) in the process of being screwed by their insurance company. In the case of (A), their problem is the result of catastrophic management failure (lack of foresight) and, in (B), their problem is the result of a catastrophic management failure (lack of willpower to take the insurance underwriter to claims court).

    [406@k5] NON ILLIGITIMI CARBORUNDUM EST
    [ Parent ]
    Re: Lifeboat (none / 0) (#40)
    by Surly on Thu Dec 20, 2001 at 01:56:22 PM EST

    In order to get all the people to safety, you rotate who is in the boat. Assuming that you can fit 14 or 15 into the boat, you should rotate 4 or 5 people in and out of the water.

    To apply this to the topic: he could have easily cut their pay, or laid them off (assuming they have unemployment insurance) to remove some of the liability from the company.

    [ Parent ]
    Why is that different? (1.50 / 2) (#18)
    by spacejack on Wed Dec 19, 2001 at 03:26:26 PM EST

    Market downturn/catastrophic event? I mean you can explain the events, and I can have sympathy for them, but frankly I've got a lot more sympathy for the company I mentioned. You're closer to them, I'm closer to these guys. Why should I have sympathy for your guys? Besides, I'm not even American.

    [ Parent ]
    The fleecing of America (3.42 / 7) (#8)
    by Zeram on Wed Dec 19, 2001 at 12:52:31 PM EST

    Ok so that was horrible joke. I have a polartec fleece, maybe it's time I got another... As a side note, maybe company #2 isn't in such dire straights after all?
    <----^---->
    Like Anime? In the Philly metro area? Welcome to the machine...
    Coincidentally... (4.20 / 5) (#13)
    by DesiredUsername on Wed Dec 19, 2001 at 02:40:46 PM EST

    ...about 20 minutes after skimming this article, I heard the story on Here & Now, out of the Boston NPR affiliate. The "anchor" of the show presented a pretty dire case, but then Aaron came on and pretty said "it's not really that bad". He conceded that they had undergone a Chapter 11 re-org but then said that things were a) fine and b) turning around. They got a big military contract (I guess winter in Afghanistan demands some warm gear) and have seen some "patriotic buying".

    He seemed pretty unconcerned and VERY gung-ho about the ability of his laborers and management to turn things around. He quashed the idea that he had killed the company with kindness by sending out paychecks when no work was being done by saying "Why shouldn't I be good to them? They are the ones putting the quality in there."

    I'm sure some of this was bluff. OTOH, he also seemed genuine (not fakey genuine). My advice: continue to buy the best product for the best total price. If Aaron is right, that will be all the help his company needs.

    Play 囲碁

    Exactly (none / 0) (#15)
    by vambo rool on Wed Dec 19, 2001 at 02:44:30 PM EST

    That is my point exactly.

    [ Parent ]
    this guy's an idiot (2.00 / 17) (#16)
    by Professor Mom on Wed Dec 19, 2001 at 02:49:03 PM EST

    Why would anyone defend a company that pays its workers for doing nothing? Couldn't these workers get other jobs? So what's the story, they get to sit around the entire time the mill was being rebuilt, and get paid to jack off?

    I like polartec products. But asking people to buy something just so some idiot can stay in business is ridiculous. The wankers posting to kuro5hin are the only people who would fall for that, you idiots.

    Professor Mom


    Up North (4.50 / 2) (#20)
    by natael on Wed Dec 19, 2001 at 03:49:41 PM EST

    I know New England is somewhat unique in this this respect, but up here we tend to think of our companies as part of the greater community rather than just a place to work.

    In many cases, the town exists because of the factory. When the Mill burned down, there was way most of the workers would have been able to find other work. Very few towns of that size could handle an influx of so many new workers. The alternative would have been a few thousand people on welfare, which no one wants. The company decided that it was just and fair to provide for the workers during the downtime. They also didn't want to lose skilled workers who had been with the company for years.

    This all happened awhile ago, but if I remember correctly, the employees didn't just sit on their asses during all this. They helped out any way they could. Those with the construction skills helped build the new factory while others did what they could. The company protected the community from what could have been a huge downturn in the economy, and built up a lot of loyalty with both the employees and the citizens living near the factories. They did the right thing, when many companies would have just screwed the workers over, and they deserve our support.

    "Have been unavoidably detained by the world. Expect us when you see us." - Stardust
    [ Parent ]

    What he got... (4.66 / 3) (#25)
    by ucblockhead on Wed Dec 19, 2001 at 04:57:58 PM EST

    He didn't get nothing for those paychecks he sent out. He got "employee loyalty". What he'll have is employees that are more willing to work hard, less willing to quite, and more willing to make sacrifices for the company.

    Too often, companies treat employees like interchangeable parts and then wonder why they have morale problems and high turnover... Hell, I've even seem corporate types whine about the lack of employee loyalty. But it should be obvious that unless a company works to be loyal to employees, they are not going to get loyalty from employees.

    The trouble is that the beancounters can't measure "loyalty" or "morale", and so pretend it doesn't exist. But the funny thing is, the companies that do treat employees well often end up on top, in the long run.
    -----------------------
    This is k5. We're all tools - duxup
    [ Parent ]

    Re: What he got... (1.00 / 5) (#31)
    by Professor Mom on Wed Dec 19, 2001 at 07:54:29 PM EST

    "But the funny thing is, the companies that do treat employees well often end up on top, in the long run."

    Oh, my bad. I failed to notice that the company in question is "on top".

    Professor Mom


    [ Parent ]
    Short term thinking. (3.00 / 2) (#36)
    by ucblockhead on Wed Dec 19, 2001 at 11:36:40 PM EST

    Yeah, because you didn't wait for the long run.
    -----------------------
    This is k5. We're all tools - duxup
    [ Parent ]
    no matter how much you post, you are still... (1.00 / 6) (#41)
    by Professor Mom on Thu Dec 20, 2001 at 02:49:50 PM EST

    a bonehead

    Professor Mom

    [ Parent ]
    Yar, you're right... (2.00 / 1) (#52)
    by rantweasel on Fri Dec 21, 2001 at 04:11:28 PM EST

    Look at all of those Japanese car companies, working hard at employee loyalty and build quality, and compare them to Detroit's Big 3, who work hard at making cash for the investor. Why, poor Toyota, barely afloat, because nobody buys Toyotaa, and the workers don't work hard enough. Poor Honda. Meanwhile, big bad Chrylser will never have to be bought out by a german luxury car marque because of business decisions made by people with the attitude you're espousing. They are solid as a rock. And GM and Ford, well everyone knows of the legendary build quality of their fine American autos. As for employee loyalty and loyalty to employees, just take a look at the fine town of Flint, Michigan, a shining beacon to the industrialized world, a perfect example of the company town!

    I think that ucblockhead might have a pretty good point.

    mathias

    [ Parent ]
    Irony (3.00 / 2) (#37)
    by mold on Thu Dec 20, 2001 at 02:46:49 AM EST

    How ironic. Calling the "wankers posting to kuro5hin" idiots in a post to k5.

    Someday, I hope you have an experience that you need help with, and that no one does. People get what they deserve.

    ---
    Beware of peanuts! There's a 0.00001% peanut fatality rate in the USA alone! You could be next!
    [ Parent ]
    I don't care (3.14 / 7) (#23)
    by /dev/trash on Wed Dec 19, 2001 at 04:10:56 PM EST

    A bad business decision should make me feel sorry for him? No. he should have had the guts to lay off the people 6 years ago, and called back the ones taht had temp jobs or were still unemployed. he just delayed the inevitable til now. Calling GE capital and the such vultures and saying they are swooping in for the kill is wrong. Debt is debt, if you never have to pay it off, why even keep track of it.



    ---
    Updated 02/20/2004
    New Site

    Debt (none / 0) (#45)
    by vambo rool on Thu Dec 20, 2001 at 06:14:30 PM EST

    So then are you saying if you take out a mortgage, you are bound by that mortgage forever? You are never allowed to refinance? No matter how low interest rates go in the future, because you signed at mortgage at 20%, you will be obligated to pay that 20% with no option to refinance? Are you saying that if you find a credit card with a lower interest rate, you cannot use that one to pay off a higher rate card, you must pay the higher rate card because that's the one you used to incur the debt?



    [ Parent ]
    Sure (none / 0) (#47)
    by /dev/trash on Thu Dec 20, 2001 at 07:59:22 PM EST

    He's allowed to refinance but he'd be in a better condition to do so if he had not increased his debt load so high by keeping people on the payroll.

    ---
    Updated 02/20/2004
    New Site
    [ Parent ]
    One basket to contain them all (3.00 / 4) (#26)
    by abo on Wed Dec 19, 2001 at 06:01:28 PM EST

    [...] while employees and retirees were forced to watch their life savings melt away and careers come to a sudden halt. (One man who testified before the Senate yesterday (12/19) had his entire retirement savings wiped out. Over the course of a 30+ year career, he had acquired over 16,000 shares [...]
    When will you USAers stop relying on your former employers for your retirement? And have you ever heard that old saying about all eggs in one basket?

    Sure, some former IT workers in Sweden (where I live) have lots of worthless stock options nowadays, but they knew the risks. Also, some instead have nice, expensive apartments in downtown Stockholm.

    Finally, to comment on your main point: No, I don't think employers have a responsibility towards their employees. That's what income loss insurance is for.

    Employees are giving up all their paid holidays through 2002 to help get the company back on its feet.
    They could have instead given up some of their money the last 20 years for an unemployment income insurance. Then they would have managed while the mill was being rebuilt.
    -- Köp BRUX!
    Retirement (5.00 / 1) (#28)
    by vambo rool on Wed Dec 19, 2001 at 07:09:08 PM EST

    Without commenting on your second point except to say that missed my main point and that I will consider myself grateful to never have to work with or for most of you, I can say something about your first point.

    One sort of retirement plan here is called a 401(k) plan (named for tax code section 401 paragraph k). These plans are severely restricted in regards to what the employee can do with it (and when). They are almost always administered by the employer, as it was in this case. It is the administrator (company) who decides where this money will be invested, and in Enron's case, they decided that 67% of the money should be invested in Enron stock. Companies often match contributions to 401(k) plans, but you must participate to get the matching funds and you still can't get at them until you're 60. If you work for a company that has a 401(k) plan, that is just about all of your options for establishing any meaningful retirement plan.

    There is also an IRA, or Individual Retirement Account, but that is limited to a maximum $2000 per year contribution which lowers to zero if your income is high enough (currently $43,000). (Actually, you can contribute any, these are the amounts you are allowed to deduct from your income tax.)

    In this specific case, Enron was changing plan adminstrators right at the time the stock was melting down and there was a one month blockout period where employees and retirees could not sell their stock even if they tried. (Companies are often listed as the "administrator" but outsource the actual administration tasks to other companies like Fidelity or TIAA Cref or Hancock or somebody like that.)

    There are also pension plans which are different from both 401(k)s and IRAs. Where the other two are primarily employee contributed (with matching funds in some cases), pension plans are generally employer contributed and are part of the package you agree to when you agree to be employed at a company. It's all part of the same compensation package. For example, you might decide it would be better to take a slightly smaller paycheck in return for a larger pension plan. (You might not, but you might, it all depends on your circumstance.) Then to have that "disappeared" can be disastrous.

    So, often there isn't a lot of choice.



    [ Parent ]
    ...one market to care for them all. :-) (3.00 / 1) (#32)
    by abo on Wed Dec 19, 2001 at 09:13:55 PM EST

    Without commenting on your second point except to say that missed my main point and that I will consider myself grateful to never have to work with or for most of you, I can say something about your first point.
    I don't want to sound too cynical, but it just seems like keeping the workers on the payroll actually made sense for all parties. If it hadn't, then he should have let them go. Even in such cases, it might make sense to ease the transition a bit by helping people get new jobs, for example by paying for some education or training. Happy workers are good workers, even if they are only former employees.

    My point is that the market may be cynical, but it is usually right. There should just be other systems in place to provide some sort of safety for individuals.

    By the way, it's really cold in Stockholm right now. I wouldn't mind buying their products...

    About retirement and pensions: Wouldn't the solution be to raise the limit on the IRA substantially? Then people can just opt for a large paycheck. How is it invested, anyway?

    In Sweden, is is possible to save money for the retirement in a similar way. You choose for yourself where to put the money (a fund with a bank/insurance company) and the tax is simply postponed to the retirement. Of course, being a socialist country, we have the tax-funded pensions as well, although a small part of the money is invested to the likings of each individual.
    -- Köp BRUX!
    [ Parent ]

    The usual refrain... corporate power (4.00 / 1) (#33)
    by mech9t8 on Wed Dec 19, 2001 at 10:02:27 PM EST

    Wouldn't the solution be to raise the limit on the IRA substantially?

    But that would take power away from the corporations. Much like the strangehold US employers have over their employee's healthcare, the US system seems to makes sure employers have control over their retirement savings... as well as making sure you get screwed on both counts if you want to be self-employed.

    It's enough to boggle the mind of someone from a more sensible country (I'm from Canada)... OTOH, I think the overall tax burden does end up being cheaper, and in the general wages are higher, so I'm not sure which system is actually *better* as opposed to just more sensible...

    (Never mind the inordinate complexity of the US tax code to begin with.)

    --
    IMHO
    [ Parent ]

    Social Security Tax (3.00 / 1) (#39)
    by Luyseyal on Thu Dec 20, 2001 at 10:41:26 AM EST

    I can't speak for Canada, but my largest complaint about retirement is not my employer, it's so-called Social Security. Instead of contributing my salary to a retirement plan from which I could eventually benefit, a hefty percentage is being dumped into a massive black hole.

    It's downright unethical.

    I'd be somewhat less pissed if they dropped the name "Social Security" and called it what it is: Supplementary Income for Needy Retired Persons. But again, you're taking away from not only my retirement but also those funds that could be used to support my own family.

    -l

    [ Parent ]
    Limits (5.00 / 1) (#34)
    by vambo rool on Wed Dec 19, 2001 at 10:47:04 PM EST

    When IRAs were first started, there was no limit on how much you could contribute and deduct from your taxes. But the government saw how much people started saving and nixed it, setting the 2g limit.

    IRAs work by deferring taxes. Whatever you contribute (up to the limit) is not taxed until you withdraw the money at age 59-1/2 or later. If you withdraw it before then, there are significant penalties.

    IRAs are set up by individuals and are under the control of the individual. Except for the fact that you cannot withdraw the money, there aren't a lot of restrictions on what you can do with it. I don't think you can do currency trading and you can't do options or do anything that would put you at risk of losing more than 100% of what you have (that is, you can't sell short). You have to open an IRA account, usually at a brokerage or a bank or maybe an insurance company.

    There are about 4 types of IRAs for different purposes: Individual or "regular," SEP, Rollover and Roth. I have one of each. "Individual" is the one I've been describing. A SEP is a sort of simplified 401k for the self-employed and very small business (like me). It has much, much higher contribution limits (15k this year) but you can only get one if you are not eligible for a 401 at any part of the year. A "rollover" is used when you leave a company where you had a 401k and you aren't allowed to keep your money there after you leave. You have to "roll it over" into either your 401k at your new company (if they have one) or into a Rollover IRA (you are never allowed to touch the money until retirement). A Roth IRA is sort of the opposite of a regular. In a regular IRA, money you contribute is deducted from your taxable income in the year you made the contribution. The earnings of that IRA are then taxed when you withdraw them after you retire. In a Roth IRA, you put money in that's already been taxed but all the money you withdraw after you retire is tax free.

    Yes, it's very complex. And probably more than you ever wanted to know. Certainly more than you ever cared to know.



    [ Parent ]
    Employment loss insurance... (3.00 / 1) (#35)
    by seebs on Wed Dec 19, 2001 at 10:48:43 PM EST

    We have something similar, but at least around here, it never covers your full previous salary.

    [ Parent ]
    That's the idea (none / 0) (#46)
    by aphrael on Thu Dec 20, 2001 at 06:48:07 PM EST

    When will you USAers stop relying on your former employers for your retirement?

    We're not supposed to. The idea is that you can put up to x% of your salary, before taxes, into a tax free retirement account which is administered by the company you work for. (The company usually subcontracts that off to some brokerage that specializes in it). Enron's policy for this required that the money then be invested in enron stock.

    Which was stupid. And will soon be illegal.

    [ Parent ]

    The timberland connection (3.00 / 2) (#27)
    by p0ppe on Wed Dec 19, 2001 at 06:38:52 PM EST

    Talking about corportate conscience, I actually have a timberland branded polartec fleece: "Assembled in Costa Rica of US components"...


    "Democracy is three wolves and a sheep voting on what to have for dinner."
    Costa Rica (4.50 / 2) (#29)
    by vambo rool on Wed Dec 19, 2001 at 07:15:45 PM EST

    Yes. Malden Mills makes the fabric, not the end product. The Polartec fabric is the US component. Whoever (Timberland?) is the one who buys the bolts of fabric and makes the end garment is the one having it done in Costa Rica.



    [ Parent ]
    Feuerstein is a tough guy (4.50 / 2) (#30)
    by willwillwill on Wed Dec 19, 2001 at 07:19:32 PM EST

    but the company is in a spot.

    They went deep into debt in 1996, unfortunately that was when the Fed engineered a serious deflation.

    http://futures.tradingcharts.com/chart/GD/M

    So Malden Mills has to earn 1.33 dollars more than they expected to in order to pay off the loan. They had other problems but this is really what's killing them.

    In fact anybody who took on debt before 1996 will probably get wacked in this deflation, it's sad because they made great products and Feuerstein is no crybaby.

    This is really what's wrong with the US economy right now. This is why the rate cuts aren't working.

    Deflation, details? (none / 0) (#53)
    by dachshund on Mon Dec 24, 2001 at 11:14:29 AM EST

    So Malden Mills has to earn 1.33 dollars more than they expected to in order to pay off the loan. They had other problems but this is really what's killing them.

    Doesn't deflation really matter with regards to import/exports? I assume that Malden Mills probably does a brisk export business, and therefore a deflation of US currency would be injurious to them. But do they do enough foreign business to garner a 33% reduction in their income, which is what seems to be implied? Perhaps the answer to that is yes, but a 33% change implies a fantastic amount of out-of-country business, or an enormous drop in the value of the dollar.

    I don't know much about the product, but it strikes me that the majority of sales for this sort of US-made product would probably be inside of the US. Presumably, if US consumer spending dropped significantly, or if dire economic circumstances forced MM to drop prices by a significant percentage, I could understand why it would be difficult for them to pay off their loans.

    However, as far as I know, deflation has not seriously reduced consumer spending on good such as those made by MM, and prices haven't plummeted anytime in the past few years. Therefore, unless MM took out their loans in some other currency, or they rely on an enormous amount of foreign exports (quite possible), deflation alone doesn't explain their problems.

    [ Parent ]

    Increase, that is :) (none / 0) (#54)
    by dachshund on Mon Dec 24, 2001 at 11:17:17 AM EST

    or an enormous drop in the value of the dollar.

    Or, um, exactly the opposite, I meant to say.

    [ Parent ]

    Only marginally on topic: Kudos to Katalov (4.50 / 6) (#38)
    by ehintz on Thu Dec 20, 2001 at 06:10:47 AM EST

    Another great example of a CEO doing the right thing is Alex Katalov of Elcomsoft. It would have been exceedingly easy for him to leave Dmitry twisting in the wind. Instead, he's not only put all kinds of effort and personal sacrifice into the defense of his employee; he's also spent outrageous sums of cash on the defense. And he's managed to engineer it so that the company is now on the hook rather than Dmitry personally. Talk about money where your mouth is. If I was Russian, I'd be submitting employment apps to Elcomsoft right now. As it stands, Katalov has earned by deepest respect. That's the kind of guy I want watching my back if I'm ever in trouble.


    Regards,
    Ed Hintz
    OT: Misleading (5.00 / 1) (#42)
    by Bob Abooey on Thu Dec 20, 2001 at 03:32:23 PM EST

    (One man who testified before the Senate yesterday (12/19) had his entire retirement savings wiped out. Over the course of a 30+ year career, he had acquired over 16,000 shares of stock which, before the fall, was worth around $1.3 Million. At close of business yesterday, that 16,000 shares was worth about $8,000.)

    The problem with this statement is that it doesn't accurately show this mans loss. Yes, perhaps the net worth of his Enron stock was around 1.3 million, but that was after a ~300% run that Enron had. The stock was absurdly overvalued at that time. His true loss would be what he actually paid for those 16,000 shares, which is probably more than $8,000, but certainly not even close to 1.3 million. Seeing as how he was short sighted enough to put his entire savings into one basket he certainly got what he asked for. Any money manager worth two cents will tell you to diversify diversify diversify, regardless of the fact that you might be buying shares at a discounted rate from your place of employment.

    The fall of Enron is sad but the media tends to put their spin on it, which isn't always in synch with reality.


    -------
    "There are two major products that come out of Berkeley: LSD and UNIX. We don't believe this to be a coincidence." -- Jeremy A

    Except for one thing ... (4.00 / 1) (#44)
    by vambo rool on Thu Dec 20, 2001 at 06:08:57 PM EST

    ... the Enron-administered retirement plan require that 67% of the money be invested in Enron stock. It's not that he was short-sighted, he had no other choice.

    The quote came from watching the Senate testimony (CSPAN), not from from the media

    The stock was overvalued in hindsight and once all the secret deals that kept hundreds of millions of dollars in debt hidden and off the books. But if, as in this case, the true amount of debt was hidden, how would you know?



    [ Parent ]
    Look beyond what they tell you (5.00 / 1) (#49)
    by Bob Abooey on Fri Dec 21, 2001 at 09:56:00 AM EST

    the Enron-administered retirement plan require that 67% of the money be invested in Enron stock. It's not that he was short-sighted, he had no other choice

    Sure he did. Was he forced to put x amount of money into his retirement every month? Every job I've worked at gives you a choice, with a ceiling, of how much to put into a retirement fund. It's up to me to make sure that's done wisely. I really have a hard time believing that someone had a gun to this guys head and forced him to only buy enron stock.

    The stock was overvalued in hindsight and once all the secret deals that kept hundreds of millions of dollars in debt hidden and off the books. But if, as in this case, the true amount of debt was hidden, how would you know?

    No, the stock was insanely overvalued even based upon the false information. Have a l ook at the 5 year high for their P/E compared against their industry and tell me what you think. Enron was due for a nice fall even if they were telling the truth.


    -------
    "There are two major products that come out of Berkeley: LSD and UNIX. We don't believe this to be a coincidence." -- Jeremy A
    [ Parent ]

    Fund (5.00 / 1) (#50)
    by vambo rool on Fri Dec 21, 2001 at 11:48:39 AM EST

    According to the Senate testimony, you put money into the fund. That's it. The fund. You don't buy Enron stock, the fund does. You're either in the fund or you're not. It's a 401(k) which means it is your only choice for saving for retirement (outside the $2000 you can put into an IRA if you make less than 46k/yr). Once it's in the 401(k), you can't get it out. Your only options are the ones the company who adminsters the fund gives you and that is all.

    Now, whether you can transfer a 401(k) to a Rollover IRA while you still work for the company, I don't know. My guess is that you can't. And in this case, Enron put a lock on the fund so no one could sell anything.

    Whether it was overvalued or not, I assume it was. Most things have been over the last couple of years.

    Anyway, whatever. I've been screwed once, I learned my lesson.



    [ Parent ]
    Interesting story (none / 0) (#48)
    by kjb on Fri Dec 21, 2001 at 12:27:00 AM EST

    but I have to ask:

    Has one of the flay-rods gone out-of-skew on the treddle?

    --
    Now watch this drive.

    Re: Interesting story (none / 0) (#51)
    by vambo rool on Fri Dec 21, 2001 at 12:59:22 PM EST

    Oh, intercourse the penguin.

    [ Parent ]
    There's trouble at the mill | 54 comments (53 topical, 1 editorial, 0 hidden)
    Display: Sort:

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