"'As far as I can determine there is only one solution [to the CEO's demand to save more money]', the HR representative wrote to her superiors. 'That would be the death of all existing retirees.'"
It's no secret that hundreds of companies have been slashing pensions and health coverage earned by millions of retirees. Employers blame an aging workforce, stock market losses, and spiraling costs- what they call "a perfect storm" of external forces that has forced them to take drastic measures.
But this so-called retirement crisis is no accident. Ellen E. Schultz, award-winning investigative reporter for the Wall Street Journal, reveals how large companies and the retirement industry-benefits consultants, insurance companies, and banks-have all played a huge and hidden role in the death spiral of American pensions and benefits.
A little over a decade ago, most companies had more than enough set aside to pay the benefits earned by two generations of workers, no matter how long they lived. But by exploiting loopholes, ambiguous regulations, and new accounting rules, companies essentially turned their pension plans into piggy banks, tax shelters, and profit centers.
Drawing on original analysis of company data, government filings, internal corporate documents, and confidential memos, Schultz uncovers decades of widespread deception during which employers have exaggerated their retiree burdens while lobbying for government handouts, secretly cutting pensions, tricking employees, and misleading shareholders. She reveals how companies:
Siphon billions of dollars from their pension plans to finance downsizings and sell the assets in merger deals Overstate the burden of rank-and-file retiree obligations to justify benefits cuts while simultaneously using the savings to inflate executive pay and pensions Hide their growing executive pension liabilities, which at some companies now exceed the liabilities for the regular pension plans Purchase billions of dollars of life insurance on workers and use the policies as informal executive pension funds. When the insured workers and retirees die, the company collects tax-free death benefits Preemptively sue retirees after cutting retiree health benefits and use other legal strategies to erode their legal protections.
Though the focus is on large companies-which drive the legislative agenda-the same games are being played at smaller companies, non-profits, public pensions plans and retirement systems overseas. Nor is this a partisan issue: employees of all political persuasions and income levels-from managers to miners, pro- football players to pilots-have been slammed.
Retirement Heist is a scathing and urgent expose of one of the most critical and least understood crises of our time.
The retirement crisis is no accident, claims Wall Street Journal investigative reporter Schultz; large companies have played a significant role in its creation to protect the wealth of its top executives. When GE, IBM, Verizon, and others slashed pensions and medical benefits for millions of American retirees, they pointed fingers everywhere but at themselves but who was really at fault? Pension funds were not bleeding the companies of cash. GE hadn't contributed a cent to the workers' pension plans since 1987, but still had enough money to cover all current and future retirees. Executive pensions at GE, with a $6 billion obligation, are a drag on earnings. These are largely hidden, however, lumped in with the figures for regular pensions. Schultz's methodical cataloguing of these abuses paints a highly unflattering picture of companies that cut benefits to boost earnings, lay off older workers who are entering the years in which their pensions will spike, inflate retiree health benefits to boost profits, lobby for laws that keep the system inequitable, hoard death benefits, and fire whistle-blowers. Heartbreaking stories of destitute seniors are juxtaposed with the obscene surpluses in pension funds for executives ($25 billion at GE; $24 billion at Verizon; $20 billion at AT&T) and unless the global retirement industry is reined in, Schultz points out, it will continue to capture retirement wealth earned by many to enrich a relative few, and within our lifetimes, "retirement" will inevitably revert to what it was in the 1930s and before. A fascinating, troubling expos and a sobering call to arms.
Excellent and Revealing -- a Must Read
The “Retirement Heist” is a frightening book and goes way past my worst fears. It is a revealing picture of how many companies have preyed on their own employees. The many ways they have engineered this transfer of wealth to the companies [upper management often enough] are quite revealing.
It is also instructive how attempts to regulate pensions and health benefits have unintended consequences. For example madding pensions appear on corporate budgets as liabilities creating the opportunity to reap paper profits by reducing them even when pensions had been fully funded.
What is even worse – making this a must read – the very dodges and lies are still going on and are playing out in the public debate on pensions and benefits.