Jerry's Reviews > Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers

Retirement Heist by Ellen E. Schultz
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Feb 17, 12

bookshelves: economics
Read in December, 2011

This book talks about the many different ways companies have found to take assets from pension funds.
For example, in 1987 the accounting standard FAS 87 began requiring companies to show the future costs of employee pension benefits on their earnings statements. This was a game-changer. This gave companies an incentive to reduce pension costs and a tool to manipulate earnings. Suddenly, the $1 trillion that companies owed three generations of employees and retirees for pensions and retiree health benefits became potential earnings enhancements. In 1999 IBM cut pension benefits resulting in a saving of $450 million of which $200 million was taken as a gain on 1999 income.
Julia D'Souza of Cornell studied hundreds of companies that converted their pensions to cash balance and found that the average incentive compensation of the CEO jumped from three times salary to four times salary the year of the change. Pay of CEOs who did not change pension plans did not change. “You could have real economic wealth transfers away from employees”. The desire for earnings from pension plans also drove a change in the asset mix of pension plans from 47% stock in 1990 to 60% stock in the 1999. A study by Patricia McConnell of Bear Sterns found in 1999 that 3% of the operating income of S&P 500 companies came from pension income. Companies manipulate the pension assumptions such as investment return to allow them to meet earnings targets. In 2000 and 2001 IBM raised its pretax income by 5% by raising its assumed investment return from 9.25% to 10%.
In 2003 Lucent cut healthcare, dental coverage, death benefits, coverage for spouses and Medicare Part B premiums for non-union retirees. Labor contracts prevented cuts to benefits of union retirees. The savings of $464 million offset the $422 million obligation for the special supplemental pensions and retirement benefits for executives.
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