Sirotablog: Real-world wisdom from outside the beltway.

6.28.06

WSJ report proves executive payouts fueling America's pension crisis

In Hostile Takeover, I note that the Wall Street Journal's Ellen Schultz is, arguably, the best journalist working today. And in the last few days, she has singlehandedly blown away all the rhetoric about what's destroying America's pension system that's coming from Corporate America and their bought off cronies in government.

The public is led to believe that companies are slashing workers' pensions and backing out of their retirement promises to workers because these companies face a cash squeeze caused by the market. But in a major investigative report, Schultz points out that an "analysis of corporate filings reveals that executive benefits are playing a large and hidden role in the declining health of America's pensions." The key findings are stunning:

- Boosted by surging pay and rich formulas, executive pension obligations exceed $1 billion at some companies. Besides GM, they include General Electric Co. (a $3.5 billion liability); AT&T Inc. ($1.8 billion); Exxon Mobil Corp. and International Business Machines Corp. (about $1.3 billion each); and Bank of America Corp. and Pfizer Inc. (about $1.1 billion apiece).

- Benefits for executives now account for a significant share of pension obligations in the U.S., an average of 8% at the companies above. Sometimes a company's obligation for a single executive's pension approaches $100 million.

- These liabilities are largely hidden, because corporations don't distinguish them from overall pension obligations in their federal financial filings.

- As a result, the savings that companies make by curtailing pensions for regular retirees -- which have totaled billions of dollars in recent years -- can mask a rising cost of benefits for executives.

- Executive pensions, even when they won't be paid till years from now, drag down earnings today. And they do so in a way that's disproportionate to their size, because they aren't funded with dedicated assets.

Schultz goes on to show how many of the big companies that are slashing workers' pension are using the savings to add to executives' pension plans.