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Retirement Heist! U.S. Pensions Plundered By Corporate Greed, Author Says | Daily Ticker - Yahoo! Finance



Retirement Heist! U.S. Pensions Plundered By Corporate Greed, Author Says



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.

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.

tsquare

Yeah but wait until the government incompetents means test your SSN/PBGC and your 401k...

jungle

The pensions went to money heaven, up the vine covered drainspout.

Your article takes the side of big gov vs those evil corporations with a little class warfare thrown in for good measure.

Ask yourself, who made those regulations? Who signed those contracts? Who failed to make sure those pensions were funded?

Who wrecked the economy and made projections of pension growth based on absurd assumptions?

The lessons:

1. If your pension is not funded into an acccount in your name every month, it is just an unsecured promise of future payment.

2. Governments, corporations, and unions have proven over time that they cannot be trusted with your money. History makes this very clear, ignore it at your own peril.

So endeth the lessons.

Winged Wheeler

Pensions are great if you wind up getting what you expected. Everyone knows someone who "hit the lottery' with their pension.

However, anyone paying into a pension is doing work now and hoping to be paid for it later.

Here is a philosopher, with whom you are all familiar, that explains pensions in 5 seconds:

hamburger - YouTube

WW

Boomer

General Motors and GM are both in on this?

I would call into question any history article that said that Iwo Jima was retaken by the Marines and the USMC. I wonder how this article should be any different?

jungle

General Motors= the former privately held and publicly traded company

GM=government motors, the new government sponsored entity that shafted the former dealers, private bondholders and the taxpayers

Hope that clears it up for you.

Left Handed

What these corporations don't entirely realize is that as the workers start to retire, unless they did some completely over and above saving on top of their (now terminated) pensions, they will go from middle class to effectively poor. The standard of living will drop and they won't be able to afford the same things as before retirement. The domino effect of this is that these corporations will suffer and may go out of business as the money and demand for their product dries up. This won't matter to the execs, because they will be long gone living in the opulence they have fleeced from the workers. However it will affect the stock holders in the long run because as the demand for products go down, the value of a company will drop. This short sightedness is what is wrong with the way things are now. They only care about the next quarter dividends and the execs only care about the next quarters bonuses.

jungle

It is human nature and a trend of popular culture to seek solutions that are easy, simple and wrong.

You have only selected a scapegoat labeled corporations. Surely they have made errors by not firewalling pensions, but so have those entrusted with regulation. Unions have negotiated poor contracts and the backstop of Social Security is a house of cards.

There is plenty of blame all around, but not much interest in fixing any of the problems. And almost zero desire to take personal responsibility.

See lessons one and two above, and ask yourself a few of those questions.

The real question is why people persist in believing in these various schemes when simple math shows most of them cannot possibly work?
Something based on a static snapshot twenty years ago runs into complete failure when assumptions which were used in the construct prove entirely incorrect. Who can predict the future thirty years out, who can predict the future next year, or next week?

Everyone wants to believe, often in the face of a complete contradiction of facts. They all think they will be winners and don't care what it costs everyone else.

Get it now, because later may never arrive.

What would you say to someone on the street who promised to take your money now and give it back to you twenty or thirty years later, subject of course to any whim they may come up with in the meantime? Do you see how worthless that promise is, and how unlikely you are to benefit? Even if it really is a Nigerian prince making the promise.

Well, that is most retirement plans and SS in the real light of day. How can that make sense to anyone?


A large fund held by a "collective" is nothing more than a universal adaptor for all kinds of criminal behavior and if sits there long enough it is going to vanish.

Ask yourself right now, which of those government, corporate or union officials are going to really care about you thirty years down the road?


The answer is perfectly clear.

DAL 88 Driver

Here's an excerpt from an article I saved a couple of years ago. I think this adds some interesting perspective:
__________________________________________________ _____

THE SHIFT TO PERSONAL INVESTING

Personal investing for retirement is a relatively new concept. The great-grandparents and grandparents of Baby Boomers worked throughout their adult lives. The concept of retirement didn’t exist and life expectancy after age 65 was short. What their great-grandparents passed to their grandparents, who in turn passed to their parents, was – in all likelihood– not money or securities, but possessions: the family home, land, businesses, furniture, jewelry and other personal heirlooms. Any cash savings their parents or grandparents may have had was kept in a passbook savings account.

In 1965, stock market investments were rare. Less than 10 percent of Americans owned common stock.1 As late as 1983, that figure was still less than 20 percent.2 Our parents were guaranteed a lifetime income by military and employer pension plans and Social Security. Even as life expectancy lengthened, healthcare was affordable and subsidized by retiree health benefits and Medicare.

The world changed significantly in 1974 when Congress passed the Employee Retirement Income Security Act, better known as ERISA. Contrary to its name, ERISA began the process whereby the burden and risk of providing retirement income shifted away from employers and onto you, the employee. ERISA began the inexorable shift away from a sure, if modest, retirement income toward an uncertain future based on high- risk stock market investments in 401(k) plans and IRAs.