If you are a middle-class worker counting on the pension promises of a corporation, you might want to start developing a backup plan for retirement.
Your pension assets are more vulnerable now than ever before because no one in government seems inclined to defend your interests against the sort of financial predators who brought us the subprime mess.
For years now, a number of prominent companies have allowed their pension plans to fall deeply into the red. Ford Motor, for example, is roughly $9 billion behind.
That long-standing trend is troubling enough. But new developments threaten to raise expenses and solvency risks for rank-and-file pensioners.
First, U.S. Treasury officials say they are open to allowing companies to sell off their pension plans to Wall Street firms, which would collect fees for managing the assets. Those lining up to buy pension obligations range from highly regulated financial firms with deep pockets to small private equity shops that are neither highly regulated nor strongly capitalized. Congress would have to act to allow the transfers and set minimum requirements for pension fund acquirers.
There is no groundswell of support for any of this from the 44 million current and future retirees — mostly rank-and-file workers. What do they get for the new fees that erode their returns or for the potential new risk to pension plan solvency? Nothing.
The impetus is all coming from the potential acquirers, from the corporations that want an easy way to offload their pension obligations and from the Pension Benefit Guaranty Corp., which guarantees certain pension benefits when plans go bust. Those vested interests are sure to lobby fiercely for rules that serve their wallets, but who will lobby for the pensioners?
Meanwhile, on another front, compensation consultants have come up with a new trick to convert company pension plans into vehicles for financing executive retirements and golden parachutes. In a nutshell, tax breaks intended to enhance the pensions of rank-and-file workers are being extended to apply to the executive suite, despite a law that rightly distinguishes between the two classes.
Under the law, employers get a tax deduction for money they put in pension plans, and those plan balances can grow tax-free. Any employee can participate, but no employee can take benefits that are disproportionately large. The law says that when companies give much larger pensions to a few executives, they must do so in supplemental executive pay plans that don’t carry tax advantages.
But hard-charging benefits consultants have developed edge-of-the-law techniques for sneaking the executive pensions into the tax-advantaged plan. This trick means taxpayers wind up subsidizing bodacious executive payouts.
The practice, which was detailed in a front-page story in The Wall Street Journal Aug. 4, hasn’t drawn much attention beyond those who benefit. Neither the Internal Revenue Service nor the PBGC tracks it.
The end result saves tens of millions of dollars for companies like Intel Corp. According to The Journal, “a majority of the tax-advantaged assets in Intel’s pension plan are dedicated not to providing pensions for the rank-and-file but to paying deferred compensation of the company’s most highly paid employees, roughly 4 percent of the work force.”
The Journal implies that the practice is probably widespread, although companies that employ it usually reveal very little, if anything, about it, even in Securities and Exchange Commission filings. According to The Journal, some benefits consultants have cautioned insiders to keep quiet, lest they trigger a backlash from regulators and lower-level workers.
Where are the regulators? Where is Congress?
