The Great Retirement Heist?

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Ellen Schultz, an award-winning Wall Street Journal reporter and author of Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, was interviewed on Yahoo Daily Ticker on Monday discussing the retirement heist, how US pensions were plundered by corporate greed:
It's pretty obvious times are tough for America's working class. The combination of a prolonged period of stagnant wages, high unemployment and shaky economy - including a decade of little or no returns (if you're lucky) on assets like stocks and real estate - make it harder to pay the bills. (See: As America's Middle Class Shrinks, P&G Adopts "Hourglass" Strategy)
Meanwhile, New York Times columnist and economist Paul Krugman, noted in a piece last week titled "The Social Contract," that while the middle gets squeezed, the rich keep getting richer in both real and relative terms.
"...the Congressional Budget Office — which only go up to 2005, but the basic picture surely hasn't changed —show that between 1979 and 2005 the inflation-adjusted income of families in the middle of the income distribution rose 21 percent. That's growth, but it's slow, especially compared with the 100 percent rise in median income over a generation after World War II. Meanwhile, over the same period, the income of the very rich, the top 100th of 1 percent of the income distribution, rose by 480 percent. No, that isn't a misprint. In 2005 dollars, the average annual income of that group rose from $4.2 million to $24.3 million."
If the average worker didn't have enough to worry about, Ellen Schultz - an award-winning Wall Street Journal reporter and author of Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers -- says that in some instances the fat paychecks of the top paid executives are coming directly out of the pocket of average workers.
"As recently as a decade ago there was a trillion dollars, a quarter of a trillion in surplus assets," in corporate funds, Schultz tells The Daily Ticker's Aaron Task in the accompanying clip. "There was plenty of money in pension plans; there was plenty to pay the benefits but corporations went about taking the money away."
As the title of the book suggests, Schultz believes this was no accident, claiming corporations have been "exaggerating their retiree burdens" and plundering retirement plans in a variety of ways, including:
  • Siphon billions of dollars from their pension plans to finance downsizings and sell the assets in merger deals.
  • Overstate the burden of rank-and-file retiree obligations to justify benefits cuts, while simultaneously using the savings to inflate executive pay and pensions.
  • Hide growing executive pension liabilities, which at some companies now exceed the liabilities for the regular pension plans.
  • Purchase billions of dollars of life insurance on workers and use the policies as informal executive pension funds. When the insured workers and retirees die, the company collects tax-free death benefits.
  • Exclude millions of low-paid workers from 401(k)'s to make the plans more valuable to the top-paid.
According to Schultz, these and related measures have become commonplace among Fortune 500 companies, including AT&T, Bank of America, JP Morgan, IBM, Cigna, General Motors, GM, Comcast, UPS and the NFL, just to name a few.
U.S. corporate pension plans now face a $388 billion gap based on a recent report from Credit Suisse. That's a bigger hole than they faced at the height of the financial crisis. Companies claim it's a result of the 2008-09 stock market crash, higher costs and an aging workforce.
Schultz claims that's bogus. "It didn't have to happen," she says, noting executive compensation has risen dramatically over the same time frame. "As they've cut other people's benefits with pensions being frozen, they have increased the benefits of the executives both pay and pensions."
Unfortunately, there isn't much the average employee can do because what the corporations have done is legal and abetted by loopholes in accounting regulations. The only advice she offers is to be skeptical if you're offered a buyout. That means conferring with an actuary to guarantee the pay structure is as advertised.
You can watch the interview below. Ms. Schultz is absolutely right, US corporations have plundered their pensions, all under the watchful eye of pension regulators, padding their earnings, inflating executive pay and engaging in all sorts of questionable practices. Some will dismiss this as an exaggeration but the truth is that corporate pensions were routinely plundered and workers will never see that money again. And now that there is no more money left to plunder, corporations have decided to dump defined-benefit plans and move into less costly and more risky defined-contribution plans, shifting the retirement burden onto workers and leaving them at the mercy of this volatile wolf market.