Former Enron (search) employees who lost millions in retirement money in the company's collapse would get $85 million in a partial settlement of their lawsuit, attorneys said Wednesday. Former directors agreed to pay $1.5 million to resolve a related suit by the Labor Department (search).

In a class-action suit, the employees alleged that the now-bankrupt energy company and its officers failed to execute their duties in administering Enron's pension plan. The partial settlement calls for the company employees who were trustees of the plan to hand over an $85 million insurance policy that covered them against liability.

The partial settlement resolves the claims against Enron's human resource staff and company directors, but not those against the company itself and Kenneth Lay (search), who was Enron's chairman, and former chief executive Jeffrey Skilling (search).

The Labor Department's civil suit, filed last June, also named Lay and Skilling. The government sought to recover hundreds of millions of dollars in lost employees' retirement money, alleging that Enron and its top executives mismanaged retirement plans full of overpriced company stock.

Both suits were filed in federal court in Houston, where Enron was headquartered. The settlements must be approved by the court.

Attorneys for Enron employees said their deal would be the largest settlement ever of a case involving company stock in retirement plans.

"This is an excellent result for the class," said Clyde Platt, an attorney with Hagens Berman in Seattle. "I look forward to continuing to litigate the case."

Labor Department spokesman Ed Frank had no immediate comment.

More than 20,700 participants in Enron's 401(k) plan had nearly two-thirds of their assets invested in company stock. The suit filed on the employees' behalf alleged that they lost more than $1 billion.

The employees' attorneys will later propose to the court a plan for distributing money recovered in the settlements to individual employees .

The company spiraled toward bankruptcy in late 2001 and the stock collapsed. Employees were not told about the deteriorating finances and were blocked for a time from selling the declining Enron stock in their retirement accounts.

The Labor Department alleges that the outside directors failed to appoint a trustee to manage the Enron stock held by the employee stock ownership plan. That was separate from the company's 401(k) plans.

The allegation was disputed by Neil Eggleston, a Washington lawyer representing the outside directors. The board did appoint Northern Trust Co. as trustee in August 1999, and it was later replaced by another bank, he has said.

Under the directors' accord with the department, up to $300,000 of the $1.5 million would be paid as a penalty, with the remainder going to the employees.

The directors — who include Wendy Gramm (search), former head of the Commodity Futures Trading Commission and wife of ex-Sen. Phil Gramm, R-Texas — did not admit wrongdoing under the settlement.

"The former outside directors are pleased that this part of the Enron tragedy is being resolved and that funds can now flow to the (pension) plan participants," Eggleston said Wednesday.

Labor Secretary Elaine Chao has said that Lay "went so far as to tout the (Enron) stock as a good investment for his own employees — even after he had been warned that a wave of accounting scandals was about to engulf the corporation."

Lay also has disputed the government's allegations. His attorney has said the Labor Department was trying to create new law by requiring a company to apply a strict new standard for evaluating its own stock that is held in employee retirement plans.

No criminal charges have been brought against Lay, who was a friend of President Bush and a major contributor to his campaigns.

Federal prosecutors in February charged Skilling with nearly three dozen counts of fraud and other crimes stemming from Enron's collapse.