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Overtime Primer: Highlights from the New Regulations
The federal DOL overtime regulations go into effect this year. Are you ready?
This report includes a summary of key changes, including the salary level test and salary basis test.
As a bonus, we've included a handy flowchart to help you determine exemption status under the FLSA.
August 30, 2001
Lucent Workers Lose Jobs, Nest Eggs
Not only are they out of work, but their savings have largely evaporated because they were stashed in Lucent stock, which has fallen 91 percent since the end of 1999.
Though many people lose jobs, and many people invest in their company's stock, the problem is acute at Lucent, which is cutting 30,000 jobs this year, according to The New York Times.
Many of the affected employees started at the company years ago, when its operations were part of AT&T. They had come to think of their company as rock solid.
Management made it easy to invest: First, workers could buy stock through the employee stock purchase plan, deducting up to 10 percent of their pay toward stock purchases at a 15 percent discount.
Second, they could invest in Lucent shares through their 401(k) retirement plans. Some had their plans entirely invested in Lucent. Blue-collar workers received the company's voluntary 401(k) matching contribution in Lucent stock.
Third, 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.
For all 401(k) accounts, the average balance 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.
At some companies, more than half of the entire 401(k) plan is invested in company stock. Lucent declined to 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 was 30 percent.
The Times notes that Lucent had a grand heritage and reinvented itself as a modern telecommunications juggernaut when it was spun off from AT&T in 1996. The firm includes Bell Labs, a 76-year-old research operation 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 90's.
"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 oversee the plan prudently for the benefit of its workers. But a lawsuit filed on behalf of Lucent workers this 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, despite knowing of severe business problems.
The use of company stock in 401(k) plans is a legal gray area, according to the Times. The Employee Retirement Income Security Act of 1974 allows companies to have their workers invest in company stock in their 401(k)'s without limit, as long as the companies adhere to their duty to oversee the plans prudently.
"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."
Norman Stein, a professor at the University of Alabama who has studied the issue, told the newspaper that there should be a limit on company stock in 401(k) plans, perhaps 10 percent.
"We should say you can't load up these employee retirement plans with company stock," Stein said.
Lucent said it was attentive to the issue. "We've gone to great extremes educating employees on diversification," said William Price, a Lucent spokesmanTo view the New York Times article, click here.
longtime Lucent workers let go in recent months, years of loyalty had an unexpected cost.