Like so many of the trumped up “crises”, it turns out that As Workers’ Pensions Wither, Those for Executives Flourish
To help explain its deep slump, General Motors Corp. often cites “legacy costs,” including pensions for its giant U.S. work force. In its latest annual report, GM wrote: “Our extensive pension and [post-employment] obligations to retirees are a competitive disadvantage for us.” Early this year, GM announced it was ending pensions for 42,000 workers.
But there’s a twist to the auto maker’s pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.
Another of GM’s pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives.
This is the pension squeeze companies aren’t talking about: Even as many reduce, freeze or eliminate pensions for workers — complaining of the costs — their executives are building up ever-bigger pensions, causing the companies’ financial obligations for them to balloon.
Yes, it is shocking that corporate management, with eager support from the investor class, are going to screw over the workers again, breaking promises made to them in order to pass more wealth upward to themselves.
Just how far into peonage must the very wealthy push the people who actually work for a living?
The authors of this Wall Street Journal piece, Ellen E. Schultz and Theo Francis, lay out the scam:
Companies disclose little about any of this. But a Wall Street Journal analysis of corporate filings reveals that executive benefits are playing a large and hidden role in the declining health of America’s pensions. Among the findings:
• Boosted by surging pay and rich formulas, executive pension obligations exceed $1 billion at some companies. Besides GM, they include General Electric Co. (a $3.5 billion liability); AT&T Inc. ($1.8 billion); Exxon Mobil Corp. and International Business Machines Corp. (about $1.3 billion each); and Bank of America Corp. and Pfizer Inc. (about $1.1 billion apiece).
• Benefits for executives now account for a significant share of pension obligations in the U.S., an average of 8% at the companies above. Sometimes a company’s obligation for a single executive’s pension approaches $100 million.
• These liabilities are largely hidden, because corporations don’t distinguish them from overall pension obligations in their federal financial filings.
• As a result, the savings that companies make by curtailing pensions for regular retirees — which have totaled billions of dollars in recent years — can mask a rising cost of benefits for executives.
• Executive pensions, even when they won’t be paid till years from now, drag down earnings today. And they do so in a way that’s disproportionate to their size, because they aren’t funded with dedicated assets.
One reason executive pensions have grown so large is that they are linked to ballooning overall executive compensation. Companies often design retirement payouts to replace a percentage of what a person earns while active.
But for executives, the percentage of pay replaced is itself higher. Compensation committees often aim for a pension that replaces 60% to 100% of a top executive’s compensation. It’s 20% to 35% for lower-level employees.
You should read the rest, full of lots of interesting examples of the various deals that these twenty-first century Lords of the Manor have worked out with their compliant boards and compensation specialists. The authors conclude with this:
When General Motors cites retiree costs, the giant auto maker has a point: It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8 billion at the end of last year.
But $95.3 billion had already been set aside to pay those benefits when due.
All of these assets are earning investment returns, which offset the pensions’ expense. GM lost $10.6 billion in 2005. But deep as its losses have been, they would have been far worse without the more than $10 billion per year in investment income that the GM pension plan for the rank and file generates.
The pension plan for GM executives is another matter. Unfunded to the tune of $1.4 billion, it detracts from GM’s bottom line each year.
Just how much is a mystery, because GM doesn’t break out the figure. It said executive pensions are “a very small portion of our overall expense” but declined to give the figure.
Earlier this year, GM announced it would freeze the pensions of its 42,000 salaried workers starting next January, as well as of those 5,200 highly paid employees. The freeze of the executive pensions will cut GM’s pension liability by $60 million, while its freeze of salaried workers will yield a far bigger reduction, $1.6 billion.
A spokeswoman for GM said its concerns about its pension plans have eased, though the company remains concerned about retiree health-care costs. With the pension freeze and improved returns on its pension assets, including billions of dollars GM has contributed to the plans in recent years, “I would say pension really is not a problem any more,” the spokeswoman said. She said that GM has no fixed obligation to pay the executive benefits and could renege at any time, although she called such a move unlikely.
GM has often said its U.S. pension plans added about $800 to the cost of each car made in the U.S. in 2004. It declines to say how much was due to executive pensions.
The fix is in, of course. Every move that shareholders have tried to make to rein in runaway executive pay and perks seems to get turned back, and it’s painfully clear that the bought-and-paid for political courtiers in Washington are in no hurry to do anything about it. As David Sirota put it in the piece that led me to this expose:
According to Schultz, these deferred compensation schemes are a key factor in “creating huge and typically unfunded corporate liabilities” – liabilities that are then used to justify more cuts to workers’ pensions. Because of this abuse, at many companies the total obligation to a handful of executives approaches the total obligations to tens of thousands of workers. For instance, “General Electric’s total unfunded liabilities for executives — deferred comp plus pensions — equals more than 15% as much as its total retirement liability for more than 500,000 workers and retirees.” At Countrywide Financial Corp, “executive-retirement liability — pensions plus deferred comp — at the end of last year stood at $340 million – not far from its $373 million obligation for 25,915 ordinary workers and retirees. ” And at Comcast, “an executive-retirement liability of $469 million exceeds the pension obligation for other employees, which is $194 million.”
Faced with all of this, Congress has deliberately done nothing. Bought and paid for by the executives who are running off with billions, lawmakers allow these schemes to expand in secret – largely hidden from the investors, stockholders and employees who are getting screwed. Meanwhile, most reporters give the public a he-said-she-said account of the burgeoning retirement security crisis, leading us to believe that massive pension cutbacks are just a force of nature that cannot be stopped, rather than the unsurprising outcome of specific policy choices by greedy executives and the politicians in their back pocket.
That corruption includes both parties, as Russ Baker demonstrates:
Though they profess a need for campaign finance reform and other policies that prioritize the common good, many key figures in the Democratic pantheon personally earn a living helping corporate interests advance the very causes that their party publicly deplores.
A new study by the Real News Project, a nonprofit noncommercial investigative reporting entity I founded, shows the extent of the problem. Examining 25 key Democratic consultants, advertising and public relations execs and lobbyists, we discovered a veritable witches’ brew of odious agendas.
The question remaining is this … how long will Americans put up with this broken and inequitable system, how low must the greater majority’s prospects go before people demand change? The prospects aren’t good, as the very people cooking the books own both the political system AND the consolidated media that pushes their false narratives. Will we have to be returned completely to peasanthood before we pick up our torches and pitchforks and demand a fair and equitable system?