How Companies Plunder and Profit from the Nest Eggs of American Workers
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Unlike regular pensions, the growing executive liabilities are largely hidden, buried within the figures for regular pensions. So even as employers bemoaned their pension burdens, the executive pensions and deferred comp were becoming in some companies a bigger drag on profits.
To offset the impact of their growing executive liabilities on profits, many companies take out billions of dollars of life insurance on their employees, using the policies as informal executive pension funds and collecting death benefits when workers, former employees, and retirees die.
With the help of well-connected Washington lobbyists and leading law firms, over the past two decades employers have steadily used legislation and the courts to undermine protections under federal law, making it almost impossible for employees and retirees to challenge their employers’ maneuvers. With no punitive damages under pension law, employers face little risk when they unilaterally slash benefits, even when promised in writing, since they can pay their lawyers with pension assets and drag out the cases until the retirees give up or die.
As employers curtail traditional pensions, employees are increasingly relying on 401(k) plans, which have already proven to be a failure. Employees save too little, too late, spend the money before retiring, and can see their savings erased when the market nosedives.
But 401(k)s have other features that ensure that the plans, as they exist, will never benefit the majority of employees. The plans are supposed to provide a level playing field, the do-it-yourself retirement vehicle so perfect for an “ownership” society. But the game has been rigged from the beginning. Many companies use these plans as part of a strategy to borrow money cheaply, or in schemes to siphon assets from pension funds.
And just as the new accounting rules led to such mischief, so too did new anti-discrimination rules. Implemented in the 1990s, the rules were intended to ensure that employers didn’t use taxpayer-subsidized 401(k) plans for the favored few, but would make them available to a broad swath of workers. But thanks to the creativity of benefits consultants, employers have used the discrimination rules to shut millions of low-paid employees out of their plans and to provide them with less generous benefits, while enacting other restrictions that make the plans more valuable to managers and executives, at the expense of everyone else.
Today, pension plans are collectively underfunded, hundreds are frozen, and retiree health benefits are an endangered species. And as executive pay and executive pensions spiral, these executive liabilities are slowly replacing pension obligations on many corporate balance sheets.
Meanwhile, the same crowd that created this mess—employers, consultants, and financial firms—are now the primary architects of the “reforms” that will supposedly clean it up. Under the guise of improving retirement security, their “solutions” will enable employers to continue to manipulate retirement plans to generate profit and enrich executives at the expense of employees and retirees. Shareholders pay a price, too.
Their tactics haven’t served as case studies at Harvard Business School, and aren’t mentioned in the copious surveys and studies consultants produce for a gullible public. But the masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets. And they’re still at it. It might not be possible to resuscitate pension plans, but it isn’t too late to expose the machinations of the retirement industry, which has its tentacles into every type of retirement benefit: profit-sharing plans, 401(k)s, employee stock ownership plans (ESOPs), and plans for public employees, nonprofits, small businesses, and even churches.