Executives exploited pension surpluses

Monday October 17, 2011  Dispatch.com

Calling Michael Moore or Charles Ferguson. America’s premier muckraking documentary filmmakers are needed for another expose. This time, they can reveal how companies across this country have cheated millions of workers out of a secure retirement, while enriching executives at the top.

Ellen Schultz set out to explain how it happened in her new book, Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers.

Schultz, a Wall Street Journalreporter, describes how corporate executives enlisted benefits consultants, accountants, actuaries and lawyers, to exploit every loophole and accounting trick to “ monetize” their companies’ pension funds and turn them into their own cookie jar.

Schultz begins her saga with General Electric’s chief executive, Jeffrey Immelt, who announced at the company’s annual shareholder meeting in 2010 that the firm’s pension plan was a drag on earnings. New employees no longer would be eligible to participate.

His message was similar to those of hundreds of companies. They all claimed the trouble was an aging work force with retirement packages that were too generous and couldn’t be sustained when the stock market faltered.

In fact, the plan for GE’s workers was in such fine shape that the company hadn’t contributed any money into it since 1987, and yet it still had enough money to cover all current and future retirees. The same was true for many large companies. But that didn’t stop them from going on a spree of cutting retiree benefits.

The reason, Schultz says, is twofold. First, cutting benefits replenished assets that had been siphoned off for other purposes. For example, GE sold its pension surpluses in restructuring deals. This indirectly turned pension assets into cash. Verizon exploited the surplus to finance downsizing, offering sweetened retirement benefits rather than severance so as not to impact earnings.

Second, cutting benefits helped earnings. Because new accounting rules required companies to put pension obligations on their books, cutting pensions generated paper gains. This was all the incentive top executives needed. They could trade their workers’ retirement for a healthier bottom line that would enhance their personal earnings.

Federal law prohibits employers from rescinding benefits that have been accrued, but they can suspend the plan’s growth by freezing it or providing benefits under a less generous formula. Companies often changed the way pensions are calculated without disclosing it.

This was a tragic surprise for employees entering retirement: Some “cash-balance” plans for older workers effectively froze their pensions just when they should have been reaping the biggest pension enhancements.

Schultz says an industry of benefits consultants arose that helped employers “turn pension plans into profit centers,” treating groups of retirees not as deserving of a decent income after giving their working lives to the company, but as portfolios of assets and debts.

Today, she says, the giant surpluses are gone, “sold, traded, siphoned, diverted to creditors, used to finance executive pay, parachutes and pensions.” It was not investment losses, an aging work force and generous union contracts, as companies claim.

In fact, had companies not raided their pension funds, “they would have had a cushion that could have withstood even the (recent) market crash,” Schultz writes.

These business titans put America’s pensions in crisis to serve themselves. They need to be called out in a documentary and answer publicly for what they’ve done.

Robyn Blumner writes for Tribune Media Services.

blumner@sptimes.com

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