[P2P-F] plundering pensions

[Michel Bauwens]

*How Companies Plunder and Profit from the Nest Eggs of American
Workers*<http://www.alternet.org/books/152549/how_companies_plunder_and_profit_from_the_nest_eggs_of_american_workers/>
ELLEN SCHULTZ - AlterNet
*This shows you the contempt the uber-rich who control corporations have for
the middle class people who work for them.

Ellen Schultz, an investigative reporter for the Wall Street Journal, has
covered the retirement crisis for over a decade.*
n December 2010, General Electric held its Annual Outlook Investor Meeting
at Rockefeller Center in New York City. At the meeting, chief executive
Jeffrey Immelt stood on the Saturday Night Live stage and gave the gathered
analysts and shareholders a rundown on the global conglomerate’s health. But
in contrast to the iconic comedy show that is filmed at Rock Center each
week, Immelt’s tone was solemn. Like many other CEOs at large companies,
Immelt pointed out that his firm’s pension plan was an ongoing problem. The
'pension has been a drag for a decade,” he said, and it would cause the
company to lose 13 cents per share the next year. Regretfully, to rein in
costs, GE was going to close the pension plan to new employees.

The audience had every reason to believe him. An escalating chorus of
bloggers, pundits, talk show hosts, and media stories bemoan the burgeoning
pension-and-retirement crisis in America, and GE was just the latest of
hundreds of companies, from IBM to Verizon, that have slashed pensions and
medical benefits for millions of American retirees. To justify these cuts,
companies complain they’re victims of a 'perfect storm” of uncontrollable
economic forces-an aging workforce, entitled retirees, a stock market
debacle, and an outmoded pension system that cripples their chances of
competing against pensionless competitors and companies overseas.

What Immelt didn’t mention was that, far from being a burden, GE’s pension
and retiree plans had contributed billions of dollars to the company’s
bottom line over the past decade and a half, and were responsible for a
chunk of the earnings that the executives had taken credit for. Nor were
these retirement programs-even with GE’s 230,000 retirees-bleeding the
company of cash. In fact, GE hadn’t contributed a cent to the workers’
pension plans since 1987 but still had enough money to cover all the current
and future retirees.

And yet, despite all this, Immelt’s assessment wasn’t entirely inaccurate.
The company did indeed have another pension plan that really was a burden:
the one for GE executives. And unlike the pension plans for a quarter of a
million workers and retirees, the executive pensions, with a $4.4 billion
obligation, have always been a drag on earnings and have always drained cash
from company coffers: more than $573 million over the past three years
alone.

So a question remains: With its fully funded pension plan, why was GE
closing its pensions?

That is one of the questions this book seeks to answer. Retirement Heist
explains what really happened to GE’s pensions as well as to the retirement
benefits of millions of Americans at thousands of companies. No one disputes
that there’s a retirement crisis, but the crisis was no demographic
accident. It was manufactured by an alliance of two groups: top executives
and their facilitators in the retirement industry-benefits consultants,
insurance companies, and banks-all of whom played a huge and hidden role in
the death spiral of American pensions and benefits.

Yet, unlike the banking industry, which was rightly blamed for the subprime
mortgage crisis, the masterminds responsible for the retirement crisis have
walked away blame-free. And, unlike the pension raiders of the 1980s, who
killed pensions to extract the surplus assets, they face no censure. If
anything they are viewed as beleaguered captains valiantly trying to keep
their overloaded ships from being sunk in a perfect storm. In reality,
they’re the silent pirates who looted the ships and left them to sink, along
with the retirees, as they sailed away safely in their lifeboats.

The roots of this crisis took hold two decades ago, when corporate pension
plans, by and large, were well funded, thanks in large part to rules enacted
in the 1970s that required employers to fund the plans adequately and laws
adopted in the 1980s that made it tougher for companies to raid the plans or
use the assets for their own benefit. Thanks to these rules, and to the
long-running bull market that pumped up assets, by the end of the 1990s
pension plans at many large companies had such massive surpluses that the
companies could have fully paid their current and future retirees’ pensions,
even if all of them lived to be 99 and the companies never contributed
another dime.

But despite the rules protecting pension funds, U.S. companies siphoned
billions of dollars in assets from their pension plans. Many, like Verizon,
used the assets to finance downsizings, offering departing employees
additional pension payouts in lieu of cash severance. Others, like GE, sold
pension surpluses in restructuring deals, indirectly converting pension
assets into cash.

To replenish the surplus assets in their pension piggy banks, companies cut
benefits. Initially, employees didn’t question why companies with
multi-billion-dollar pension surpluses were cutting pensions that weren’t
costing them anything, because no one noticed their pensions were being cut.
Employers used actuarial sleight of hand to disguise the cuts, typically by
changing the traditional pensions to seemingly simple account-style plans.

Cutting benefits provided a secondary windfall: It boosted earnings, thanks
to new accounting rules that required employers to put their pension
obligations on their books. Cutting pensions reduced the obligations, which
generated gains that are added to income. These accounting rules are the
Rosetta Stone that explains why companies with massively overfunded pension
plans went on a pension-cutting spree and began slashing retiree health
benefits even when their costs were falling. By giving companies an
incentive to reduce the liability on their books, the accounting rules
turned retiree benefits plans into cookie jars of potential earnings
enhancements and provided employers with the means to convert the trillion
dollars in pensions and retiree benefits into an immediate,
dollar-for-dollar benefit for the company.

With perfectly legal loopholes that enabled companies to tap pension plans
like piggy banks, and accounting rules that rewarded employers for cutting
benefits, retiree benefits plans soon morphed into profit centers, and
populations of retirees essentially became portfolios of assets and debts,
which passed from company to company in swirls of mergers, spin-offs and
acquisitions. And with each of these restructuring deals, the subsequent
owner aimed to squeeze a profit from the portfolio, always at the expense of
the retirees.

The flexibility in the accounting rules, which gave employers enormous
latitude to raise or lower their obligations by billions of dollars, also
turned retiree plans into handy earnings-management tools.

Unfortunately for employees and retirees, these newfound tricks coincided
with the trend of tying executive pay to performance. Thus, deliberately or
not, the executives who green-lighted massive retiree cuts were indirectly
boosting their own pay.

As their pay grew, managers and officers began diverting growing amounts
into deferred-compensation plans, which are unfunded and therefore create a
liability. Meanwhile, their supplemental executive pensions, which are based
on pay, ballooned along with their compensation. Today, it’s common for a
large company to owe its executives several billion dollars in pensions and
deferred compensation.

These growing 'executive legacy liabilities” are included in the pension
obligations employers report to shareholders, and account for many of the
'growing pension costs” companies are complaining about. Analysts,
shareholders, and others don’t understand that executive obligations are no
different from pension obligations for rank-and-file workers and
retirees-they are governed by the same accounting rules, and they represent
IOUs that a company has on its books. In some ways, executive liabilities
are like public pensions: large, growing, and underfunded (or, as in the
case of the executives, unfunded).

Unlike regular pensions, the growing executive liabilities are largely
hidden, buried within the figures for regular pensions. So even as employers
bemoaned their pension burdens, the executive pensions and deferred comp
were becoming in some companies a bigger drag on profits.

To offset the impact of their growing executive liabilities on profits, many
companies take out billions of dollars of life insurance on their employees,
using the policies as informal executive pension funds and collecting death
benefits when workers, former employees, and retirees die.

With the help of well-connected Washington lobbyists and leading law firms,
over the past two decades employers have steadily used legislation and the
courts to undermine protections under federal law, making it almost
impossible for employees and retirees to challenge their employers’
maneuvers. With no punitive damages under pension law, employers face little
risk when they unilaterally slash benefits, even when promised in writing,
since they can pay their lawyers with pension assets and drag out the cases
until the retirees give up or die.

As employers curtail traditional pensions, employees are increasingly
relying on 401(k) plans, which have already proven to be a failure.
Employees save too little, too late, spend the money before retiring, and
can see their savings erased when the market nosedives.

But 401(k)s have other features that ensure that the plans, as they exist,
will never benefit the majority of employees. The plans are supposed to
provide a level playing field, the do-it-yourself retirement vehicle so
perfect for an 'ownership” society. But the game has been rigged from the
beginning. Many companies use these plans as part of a strategy to borrow
money cheaply, or in schemes to siphon assets from pension funds.

And just as the new accounting rules led to such mischief, so too did new
anti-discrimination rules. Implemented in the 1990s, the rules were intended
to ensure that employers didn’t use taxpayer-subsidized 401(k) plans for the
favored few, but would make them available to a broad swath of workers. But
thanks to the creativity of benefits consultants, employers have used the
discrimination rules to shut millions of low-paid employees out of their
plans and to provide them with less generous benefits, while enacting other
restrictions that make the plans more valuable to managers and executives,
at the expense of everyone else.

Today, pension plans are collectively underfunded, hundreds are frozen, and
retiree health benefits are an endangered species. And as executive pay and
executive pensions spiral, these executive liabilities are slowly replacing
pension obligations on many corporate balance sheets.

Meanwhile, the same crowd that created this mess-employers, consultants, and
financial firms-are now the primary architects of the 'reforms” that will
supposedly clean it up. Under the guise of improving retirement security,
their 'solutions” will enable employers to continue to manipulate retirement
plans to generate profit and enrich executives at the expense of employees
and retirees. Shareholders pay a price, too.

Their tactics haven’t served as case studies at Harvard Business School, and
aren’t mentioned in the copious surveys and studies consultants produce for
a gullible public. But the masterminds of this heist should take a bow: They
managed to take hundreds of billions of dollars in retirement benefits that
were intended for millions of workers and divert them to corporate coffers,
shareholders, and their own pockets. And they’re still at it. It might not
be possible to resuscitate pension plans, but it isn’t too late to expose
the machinations of the retirement industry, which has its tentacles into
every type of retirement benefit: profit-sharing plans, 401(k)s, employee
stock ownership plans (ESOPs), and plans for public employees, nonprofits,
small businesses, and even churches.

The retirement industry has exported its tactics, using them to achieve
similar outcomes in retirement plans in Canada, Europe, Australia, and
elsewhere, and has big plans for Social Security and its overseas
equivalents as well. Unless it is reined in, the global retirement industry
will continue to capture retirement wealth earned by many to enrich a
relative few.

-- 
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