Many employers claim that global competition and a volatile economy have forced to abandon pensions in favor of 401(k) plans, shifting the risk and most of the expense to employees. But Ellen Schultz, a former investigative reporter for the Wall Street Journal, says in her new book, “Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers” (Portfolio, $26.95), that “companies have been largely responsible for the retirement crisis — and it was not an accident.” In her book, Schultz details how corporate pensions went from holding $250 billion in excess funds in the late 1990s to being collectively underfunded today. Surplus pension assets are supposed to remain in the plans to provide a cushion for the inevitable times when investment returns are weak and interest rates fall — like today. But years ago, employers persuaded Congress to relax the rules and let them use their overfunded pension plans to help cover other benefits, such as retiree health plans and early-retirement buyouts.
Although that might have sounded like a good idea at the time, it essentially allowed companies such as Verizon and General Motors to use pension assets to finance corporate downsizings. Others, such as IBM, moved hundreds of millions of dollars of executive pension liabilities into their rank-and-file pension plans without earmarking additional funds to pay for them. As a result, pension funds were severely depleted. Dramatic stock market losses did the rest.
Separately, accounting-rules changes required companies to disclose future pension and retiree-health-plan obligations on their balance sheets. On the surface, the changes seemed a step toward greater transparency. But the new rules had a perverse effect: Cutting future retiree benefits improved a company’s bottom line, which in turn increased executive pay tied to corporate earnings. “By giving companies an incentive to reduce liability on the books, the accounting rules turned retiree benefits into a cookie jar of potential earnings,” Schultz writes. Not all employers that offered pension plans engaged in these practices, but those identified in Schultz’s expose read like a who’s who of corporate America.
Although traditional pension plans are on the wane, some 42 million Americans are still covered by a pension. If you’re among them, make sure you know the rules. Find out how long it takes to become vested — meaning you qualify for future benefits — and at what age you can collect. And if you are offered the choice of taking your payout as a lump sum or as a monthly payout for life, hire a financial planner or an independent actuary to verify that the lump-sum offer truly reflects the benefits you have earned. It’s your money. Protect it.
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