ShareThisThose inclined to sympathize with corporate America's chronic complaints about burdensome regulations and frivolous lawsuits should read Ellen E. Schultz's book, "Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers."
The Wall Street Journal reporter documents how companies take advantage of poorly worded federal law, the legal system and retirees who are ill-equipped to understand the nuances of accounting or to challenge their former employers in court. Schultz said the result has been the widespread elimination of retiree pension and health care benefits and the simultaneous increase in the pay and benefits of top executives.
While many readers will struggle to understand how the accounting rules and congressionally blessed loopholes work, Schultz makes their consequences abundantly clear. The retirement crisis was not, in fact, caused by aging workforces, retirees who are living longer and other demographic factors, she said.
The real culprits were top executives, benefits consultants, insurance companies and banks, "all of whom played a huge and hidden role in the death spiral of American pensions and benefits," Schultz writes.
Accounting rules provide an incentive for companies to cut benefits because they can book gains from their savings. The rules took effect as companies began tying more executive pay to profits.
"Deliberately or not, the executives who green-lighted massive retiree cuts were boosting their own pay," she writes.
Companies healthy enough to contribute to their pension funds can book gains based on what they assume their investments will earn. That also boosts incentive-based pay.
Theoretically, the pension fund earnings could be used to pay benefits for all retirees. But Schultz said companies, assisted by benefits consultants, are taking advantage of loopholes intended to prevent lower paid employees from being treated differently than top executives.
"Discrimination in favor of the highly compensated is rampant -- and legal -- thanks to various loopholes," she said.
Those who doubt Schultz can read a 2009 U.S. Government Accountability Office study. Congress' investigative arm found that in the five years before 10 troubled companies terminated their pensions and dumped the liabilities on the federal government, they managed to provide $350 million in pay and other compensation to 40 top executives.
Schultz offers a horrific litany of other means used to reduce retiree benefits and take care of those in the corporate suite.
The book outlines how companies have used life insurance policies they purchase on their own employees as tax shelters to fund deferred compensation and executive-only retirement plans. The company gets the death benefit as well as the investment income associated with the policies. The practice was made possible by a loophole Congress created in the 1990s after corporate and insurance industry lobbyists assured legislators earnings from the policies would be used to pay retiree benefits.
"This whole retirement industry of consultants and lawyers and industry groups have been responsible for much of the damage, and they too are resisting more regulation," Schultz said.
(Contact Len Boselovic at lboselovic(at)post-gazette.com.)
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(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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