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

In the private sector, current and future retirees are bearing the brunt of the retirement heist; in the public sector, the carnage is being borne by the employees and by the communities around them.

The scapegoat game continues. Corporate employers are still blaming aging workers, retiree “legacy costs,” and “spiraling” retiree health care costs for their financial woes—not their own actions that squandered billions of dollars in pension assets, their thinly masked desire to convert benefits earned by and promised to retirees into profits for executives and shareholders, and their willingness to sacrifice retiree plans, and the well-being of retirees, for short-term gains.

In the public plan sector, the scapegoats are the public employees and retirees, who are beginning to have the haunted look of victims of the Salem witch hunts. The real culprits are the self-serving politicians and officials who passed the funding buck to future generations, the consulting firms that helped them do this, and the investment banks that conned local governments into investing taxpayer-funded pensions in risky, abusive investments.

The reforms employers are pushing today are the same reforms the ERISA Advisory Council proposed when it met in 1999 to discuss the “problem” of companies having too much surplus in their pension plans: Allow employers greater latitude to use pension money to pay retiree health and layoff benefits, ease funding rules, lift funding ceilings, and lift the benefits limits in 401(k)s and pension plans. The latter recommendation would facilitate discrimination in retirement plans and enable employers to shift billions of dollars of executive liabilities into their regular pension plans. More quietly, employers and insurers are looking to ease restrictions on buying life insurance on workers, which they supposedly use to pay for retiree health benefits but actually use to finance deferred compensation.

Though characterized as reforms that would improve retirement security, employers propose them with a veiled threat. They remind lawmakers and regulators—as they have for the past thirty years—that it’s a voluntary system, and they don’t have to have pension or retirement plans at all. If they don’t get their way, they might just pull the plug on their plans altogether. This often causes lawmakers to fall in line. (And besides, who isn’t for retirement security?)

But this threat is the equivalent of a five-year-old threatening to hold his breath until he turns blue. The fact is, employers can’t fold their benefits tents at will: The pensions people have earned are legally earned delayed compensation, protected by law. (Though they can be cut or frozen going forward.) Retiree health benefits for unions are protected by negotiated contracts. Employers have put pretty much everything else—future pension accruals, retiree health for salaried retirees—on the chopping block already. Or can at any moment.

And, of course, the “pull-the-plug” threat is a bit less effective when companies have already frozen their pensions. The only move left is to terminate the plans. But they aren’t going to do this, either. Not yet. Unless the pension is woefully underfunded and a candidate for dumping in bankruptcy, a frozen pension plan is more valuable alive than dead.

Apart from all their other benefits for employers, frozen pension plans can function as shadow plans for executive liabilities. The investment returns offset the cost of the executive obligations, and the frozen plans often contain QSERPs, the mini–executive pensions that employers carve out within the regular pensions by taking advantage of loopholes in the discrimination rules.

The assets in pension plans have largely recovered from the market crisis losses, and, as interest rates finally begin to rise from their historic lows, liabilities will fall. The surpluses will build again and be available for a variety of corporate purposes. And unless employers withdraw the money, when the surplus is substantial enough, companies may pull the plug on their pensions and use the termination loophole to capture much of the surplus money. At that point, the only pensions left will be for the executives.

This is the hidden history of the retirement crisis—a story that hasn’t made it to Fox News, the Huffington Post, or even Comedy Central. This retirement heist has produced a transfer of benefits earned by three generations of post–World War II middle-class workers to a comparatively small cohort of company executives, shareholders, and the financial industry that orchestrated the plunder.

If employers continue to control the retirement system and manage it for their own benefit, then within our lifetimes, “retirement” will inevitably revert to what it was in the 1930s and before. Society—and taxpayers—will be paying for services to support the millions of elderly, formerly middle-class Americans.

ACKNOWLEDGMENTS