You know the whine. Bloggers, pundits and media stories have repeated it often enough. Companies should not be faulted for America’s retirement-and-pension crisis. It was unforeseen economic factors—an aging workforce, increasing health care costs, an outmoded pension system and the stock market debacle—that necessitated slashing retiree benefits and forgoing pension plans for new employees.
Not so! says Ellen Schultz. Retirement Heist argues that today’s crisis, far from being a demographic accident, was manufactured by company executives and their facilitators—benefit consultants, insurance agencies, banks and industry lobbyists—to enrich the few.
An award-winning investigative journalist who used to write for The Wall Street Journal, Schultz has reported on the so-called retirement crisis for more than a decade. She has pored over Securities and Exchange Commission filings and company memos, read transcripts for court cases challenging cuts in benefits and sat through congressional hearings on pension law and conferences for actuaries. With this insider’s knowledge, she documents a tale of mind-boggling thievery and greed. Retirement Heist provides an important and shocking back story on an issue that is affecting millions of American workers.
According to Schultz, the looting began in earnest more than 20 years ago, when pension funds were still flush. Many corporate pension plans had such massive surpluses they “could have fully paid their current and future retirees’ pensions, even if all of them lived to be ninety-nine and the companies never contributed another dime,” she writes. By 1999, surpluses at some companies had reached “laughable levels”: $25 billion at G.E., $24 billion at Verizon, $20 billion at AT&T and $7 billion at I.B.M. Rather than celebrate this security, employers bemoaned their inability to access these assets and pushed for the government to loosen the rules of withdrawal, which it did. With the spigot open, corporate siphoning of wealth, already a chronic problem, intensified.
Retirement Heist methodically catalogues how the siphoning occurred. Exploiting loopholes and flexibility in new federal accounting rules, employers use their pension plans to finance downsizing, cover the cost of retiree health benefits and boost executive pay. They lay off older workers just before their pensions will spike, inflate retiree medical costs to increase profit and conceal the liability of executive benefits in pension plans for the rank-and-file. Schultz says the latter practice explains the current “drag” on many pension funds. By 2008 executives were receiving “more than one-third of all pay at U.S. companies—more than $2.1 trillion of the $6.4 trillion total compensation,” she notes.
The strategies employed show remarkable audacity. Some companies purchase life insurance policies on their employees, often without their knowledge, to use as tax shelters for executive benefits. Others decrease their health care obligations with “creeping take-aways.” The maneuver entails paring down medical benefits for several years in increments too small to warrant a lawsuit, then suddenly slashing them. When retirees challenge the reduction in court, the company argues that employees’ lack of action on the small cuts signaled tacit approval for the reduction.
G.E. monetized its pension assets by selling a unit to another company, then handed over more pension money than was needed for the transferred retirees in exchange for a higher asking price. Schultz says a succession of such swaps, as well as other practices, left G.E.’s once-flush pension plan $6 billion in debt by 2011.
Can pension plans be saved? Schultz thinks not. They are a thing of the past, she believes, and their replacements, 401(k)s, are not the great equalizers they were purported to be. She warns us that the retirement industry is going global and already “has big plans for Social Security.”
Retirement Heist specifically scrutinizes the scurrilous practices of America’s large corporations. The inequities documented border on the fantastical. While the book cites some individuals for their singular irresponsibility and greed, the main culprit in Schultz’s tale is the take-what-you-can-get-away-with mind-set that has infected so much of the finance industry. The ledgers used in the corporate world come from a planet few of us inhabit. Capital is divorced from labor, product or even innovation. Vast sums of money appear and disappear with a wave of the actuarial hand. Amid the wizardry, American workers, many of whom have given decades of their lives to a company, are reduced to “portfolios of assets and liabilities.”
There is pushback to this de-humanization. Some of the book’s most poignant and inspiring sections are its David-and-Goliath accounts of aging and ailing retirees challenging cuts to their already meager benefits. More often than not, Goliath wins, but the pursuit of Motorola for unexplained pension deductions by the feisty retiree Fred Loewy marks an impressive win for the Little Guy.
Readers unfamiliar with the workings of the finance industry might struggle to track the labyrinthine shenanigans recorded here. Persevere. You or someone you know could be affected by the monetary maneuverings described.
Reading Retirement Heist brought to mind Nickel and Dimed, Barbara Ehrenreich’s searing and witty examination of the minimum wage. Like Ehrenreich, Schultz explains and interprets the dollars-and-cents data on her topic, always keeping the American worker at the center of her calculus.
While the revelations in Retirement Heist infuriate and frighten, they can also inspire a re-evaluation of our notions of security. Nest eggs, after all, are fragile. Why not, then, invest in treasures that neither moth, nor rust nor profit-obsessed employers can consume?