NEW YORK TIMES
Stephen J. Gilligan worked more than 21 years for Lucent Technologies and its former parent, AT&T.
"I come from a Bell Systems family," said Gilligan, 48, adding that one of his favorite Christmas presents as a child was a model of Alexander Graham Bell's first telephone. "My grandmother, my father, my two sisters and two of my uncles worked for Bell."
But for Gilligan, like many other longtime Lucent workers let go this year, long-term loyalty had an unexpected cost. Not only are they out of work, but much of their savings has evaporated because it was stashed in Lucent stock. And Lucent stock has fallen 91 percent since the end of 1999, when the stock market was racing to all-time highs.
Many people lose jobs, and many people invest in their company's stock. But the problem is acute at Lucent, which is cutting 30,000 jobs this year. A significant share of those people started at the company years ago, when it was part of AT&T, and they came to think of their company as rock solid.
Management encouraged them to invest in the company in a tempting trifecta. First, workers could buy stock with the employee stock purchase plan, deducting up to 10 percent of their pay toward stock purchases at a 15 percent discount.
Second, workers could invest in Lucent shares through their 401(k) retirement plans, and some had their plans entirely invested in Lucent. Blue-collar workers received the company's voluntary 401(k) matching contribution in Lucent stock.
Finally, many Lucent workers received incentives and pay in options and more options to buy stock, contracts now largely worthless. Almost every rank and file Lucent worker received stock options.
The average balance in 401(k) accounts declined last year for the first time, according to Cerulli Associates, a benefits consulting firm, dropping about 12 percent to $41,919. Another study shows market declines were offset by new accounts and additional contributions.
Gilligan's 401(k) account has shrunk by $200,000 from its peak, because it was heavily invested in Lucent stock. The stock closed Friday at $6.82.
Gilligan's options to buy 1,500 Lucent shares will expire worthless in a few months, barring a miraculous stock recovery. He did not purchase shares through the employee stock plan but did lose $7,500 during the past year in Lucent shares that were a holdover from a previous savings plan.
Because he was laid off before age 50, the annual pension of at least $45,000 that he was working toward has been greatly reduced, he said, to about $600 a month when he turns 50. A former Lucent manager with a salary in the six figures, Gilligan says he still has more than $100,000 in retirement savings.
"In the back of my head, I told myself, even when the stock dropped to $50, I should get out," said Gilligan, who was taking part in a Lucent-sponsored MBA course at Northeastern University in Boston when the ax fell.
At some companies, more than half of the entire 401(k) plan is invested in company stock. Lucent would not say what portion of 401(k) assets were invested in its own stock, though the newsletter DC Plan Investing, which collects data from federal filings, estimated it at 30 percent.
A grand heritage
Lucent had a grand heritage and reinvented itself as a modern telecommunications juggernaut when it was spun off from AT&T in 1996. It includes Bell Labs, a 76-year-old research facility that holds 28,000 patents and spawned such staples of modern technology as the transistor and the laser. For many workers, buying Lucent was just a matter of loyalty -- and not wanting to be left out of the stock's next big jump after the meteoric growth of the late '90s.
"Their whole world is tied up in this one company," said David Berman, a financial planner in Baltimore, who has counseled Lucent workers.
"There are a lot of psychological reasons they want to hold the stock," he added. "They see the company stock and work there every day and believe there's more value to it than the rest of the world sees."
Lucent's only legal obligation in its 401(k) plan was to prudently oversee the plan for the benefit of their workers. But a lawsuit filed on behalf of Lucent workers last month in federal court in Newark, N.J., accuses the company of violating its duty because its top executives continued to let workers invest in company stock even when they knew of severe business problems.
The use of company stock in 401(k) plans is a legal gray area. The Employee Retirement Income Security Act of 1974 allowed companies to have their workers invest in company stock in their 401(k) without limit, as long as the companies adhere to their duty to prudently oversee the plans.
"We've never clarified in a court decision where all the boundaries are," said David Wray, president of the Profit Sharing/401(k) Council, a retirement industry trade group. "This case will have a very important effect on how company stock will be used in the future."
Professor: Limit exposure
Norman Stein, a professor at the University of Alabama who has studied the issue, thinks there should be a limit on company stock in 401(k) plans, perhaps of 10 percent.
"We should say you can't load up these employee retirement plans with company stock," Stein said.
Lucent says it was attentive to the issue. "We've gone to great extremes educating employees on diversification," said William Price, a Lucent spokesman, who added that the company distributed two quarterly newsletters and held financial planning seminars.
Where company stock was once a prized benefit by both workers and employers, neither appears eager to take credit now. Price said the union insisted that matching 401(k) contributions come in Lucent stock.
"The union wanted stock," Price said.
Candice Johnson, a spokeswoman for the Communications Workers of America, said that was not the case.
"We sought a more generous employee match, but not a match in Lucent stock," she said.
