Retirement Heist: how companies plunder and profit from the nest eggs of American workers

Michael J. Harrison, human resources vice president at Lucent Technologies, the giant AT&T spin-off, liked the idea of using surplus assets to pay executive benefits. (The language was less blunt; he and others advised using surplus assets to pay for pension benefits “in excess of qualified plan limits (such as 415 and 401[a][17] limits).”)

Like other witnesses, he maintained that allowing employers to drain the surplus assets from pension plans would actually enhance retirement security. “We believe making excess pension assets more freely available for other constructive purposes would encourage more companies to voluntarily sponsor defined benefit pension plans and encourage companies to enhance participants’ security by funding these plans at a higher level,” he testified.

DuPont’s chief actuary, Ken Porter, minced no words regarding on whose behalf the company managed the pension plans: “As a publicly traded company, DuPont has a fiduciary responsibility to its owners. We have been entrusted with the owners’ assets with the expectation that we will allocate our resources efficiently and appropriately to provide for all of our corporate obligations,” he said.

A witness from the AFL-CIO had the temerity to suggest that employers use the surplus to increase benefits or provide cost-of-living increases for retirees. Porter dismissed this notion, saying that using the surplus to pay benefits would dilute reported earnings. “Accordingly, business competitiveness issues, not pension asset values, dictate when and whether benefits levels are changed.”

Ron Gebhardtsbauer, senior pension fellow of the American Academy of Actuaries, echoed this trickle-down concept, testifying that if employers could use pension assets for their own benefit, it would actually help the employees and retirees. “Strengthening employer solvency can create more security for the pension plan . . . surplus assets could be helpful to strengthen a company at an important time . . . the best insurance is a strong employer.”

The experts who testified also included consultants from Watson Wyatt Worldwide and Mercer, two of the largest global benefits-consulting firms, which for years had helped large employers use all these strategies to tap their pension plans like piggy banks. They felt that these were all great ideas, as did the chairman of the working group, Michael J. Gulotta. As chief of AT&T’s actuarial consulting unit, he had helped the company and many others convert billions of dollars in its pension assets into company assets. They all had much to gain by helping employers further unlock the riches in their pension assets, and they already had plenty of experience doing so.

Not surprisingly, their final report concluded that “for the good of America,” the government ought to loosen the withdrawal rules. The irony is that all these employers, and many others, had already been quietly siphoning billions from their pension plans for years. They were merely seeking “reforms” that would open the spigots even further.

The arguments sounded plausible: Pension plans already had too much money and would only become even more overstuffed. After all, the stock market, like real estate, would only go up: The economy was buzzing, the government had a massive budget surplus, and interest rates were low.

One of the few dissenting voices was David Certner’s. AARP’s legislative affairs watchdog, Certner was adamant that pension assets be used for no purpose other than providing pension benefits. “The funds are put into the pension trust for the exclusive benefit of the participants,” he said at one of the council’s meetings.

Allowing employers to use the money for anything else would put the plans at risk, Certner warned, because employers would be tempted to skim off excess funds in good times and then face shortfalls when the markets declined. He warned that the recent bull market would end and that changes in the economy, interest rates, or market returns could quickly erase the surplus, putting individuals at risk. If the plans failed, participants could see a big chunk of their benefits wiped out.

If his warnings sound familiar, it’s because every single one of Certner’s predictions came true. But nobody was listening. And nothing has changed. These are the strategies employers were using—and have continued to use—to drain their pensions.

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