Earlier this week, the Wall Street Journal published a shocking exposé about how companies are using pension plans – which are intended for rank-and-file workers – to covertly fund the executive benefits of their highest-paid officers.
WSJ journalists Ellen Schultz and Theo Francis report that “At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives’ retirement benefits and pay.”
According to the article, companies such as Intel Corporation and CenturyTel, have “moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans.” This practice allows companies to capture tax breaks that are intended for the pensions of regular workers and instead use them to pay for executives’ supplemental benefits and compensation.
Current law allows high-paid executives to have extremely generous “executives-only” plans for themselves, but these plans must be funded out of corporate revenues, and do not give companies the same tax breaks as pension plans that are structured to pay benefits to all employees, both high-paid and low paid. The article goes on to detail how corporations – advised by well-paid benefit consultants – have found ways to side-step these rules in order to, in the words of one company official, “take advantage of tax breaks by paying executive benefits out of a tax-advantaged plan.”
As the article explains, highly sophisticated strategies allow corporations to pay the executives out of the funded, tax-favored employees’ pension plans by taking advantage of loopholes in rules that, ironically, were meant to make sure that the employees’ plans did not pay disproportionately larger benefits to executives.
As a practical matter, what this means is that all taxpayers end up footing the bill for special benefits that are paid to top executives. In addition, as the article points out, these maneuvers may lead to weakening of pension plan funding – which, in some instances, can result in significant benefit cuts for workers and retirees.
We think this practice is outrageous and that Congress and the Department of the Treasury should move quickly to make sure that workers’ pension plans are not used as corporate piggy banks to finance executive pensions. What do you think?