Pensions For Execs, Shaft For Workers

[Dave Farber <dave () farber net>]

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 Pensions For Execs, Shaft For Workers
 By Arianna Huffington

 Wednesday 30 April 2003

 Now that the war in Iraq has been declared officially over, can the media
please put aside their preoccupation with Scott Peterson's new hairstyle and
focus their attention on the sputtering U.S. economy? And in a week when
even Fortune, the corporate playbook, has adorned its cover with a CEO with
a pig's head and the title "Oink! CEO Pay Is Still Out Of Control," how
about starting with the guys running corporate America? They have, after
all, in the course of the last year gone from American Idols to America's
Most Wanted, the most stunning transformation since Ozzy Osbourne morphed
from a bat-chomping satanic rocker into America's cuddliest dad.

 But no matter how battered their reputations may be, they still appear
determined to rescue themselves instead of their sinking ships. For today's
captains of industry, the maxim in a crisis seems to be: "To hell with the
women and children -- save the lifeboats for us!"

 Take American Airlines. While preparing to make a rough landing in
bankruptcy court, executives at the dead broke carrier extracted from
workers $1.62 billion in wage and benefit concessions the bosses claimed
were needed to keep American aloft. At the same time, the execs secretly
safeguarded themselves with a glittering array of golden parachutes,
including massive cash bonuses and a $41-million trust fund to guarantee
their pensions should the airline crash and burn.

 Even after the secret escape plan was revealed and all hell broke loose,
the company held fast to its priorities. It canceled the cash bonuses. It
tossed CEO Don Carty onto the tarmac. But it refused to relinquish the fund
protecting its execs' nest eggs.

In the end, the executives kept their cushy trust fund while the workers
were forced to go along with a deal that will lead to thousands of lay-offs
and pay cuts of between 15 and 21 percent. I guess in today's business
world, that's what amounts to a compromise.

 Besides making one reach for the nearest airsickness bag, the American
Airlines debacle highlights the growing disparity between the ways corporate
America is preparing for the golden years of its executives and its rank and
file employees. 

 In the clubby confines of America's boardrooms, the sky is the limit.
Compensation committees are working overtime coming up with ever more
creative -- and devious -- ways to boost the earnings of top executives. And
super-charged pension plans are the hot new trend.

Among the gimmicks being used to goose the value of these plans is an
accounting scheme that can dramatically increase a CEO's retirement windfall
by adding phantom years -- even phantom decades -- of service to the exec's
pension. In theory, it works the same way as those jailhouse rules that
reward a model prisoner with time off for good behavior -- only these guys
get rewarded no matter how many employees or shareholders they've knifed in
the back with a homemade shiv.

 Thanks to this latest innovation in corporate accounting, Leo Mullin, Delta
Airlines' CEO, has had an additional 22 years of service tacked on to the
less than six years he's actually worked for the company, while US Air's
former CEO Stephen Wolf was given credit for 24 years he didn't really put
in. And this scam isn't reserved for the high-flyers of the airline
industry. When John Snow left CSX Railroad to become Treasury Secretary, he
was given credit for having put in 44 years at the firm, even though he'd
actually punched a time clock there for 25 -- a little fun with numbers that
helped him walk away with a cool $33 million in pension booty.

 Corporate directors, who have come under increasing fire from shareholders
for approving excessive pay packages for high-level executives, appreciate
the fact that these pension plan adjustments allow them to fly under the
radar while continuing to funnel millions to CEOs. Unlike salaries and
bonuses, which are regularly reported in the business press, the details of
executive pension plans are usually hidden away in the extra fine print of a
company's SEC filings.

 And CEOs love that pension plan payouts come with none of those annoying
tied-to-performance strings attached. US Air's Wolf, for instance, made off
with a $15 million pension cash-out just six months before the company filed
for bankruptcy. Richard Brown, former CEO of Electronic Data Systems, was
rewarded for overseeing a 62 percent drop in share price -- and steering the
firm into an SEC investigation -- with a pension plan that will pay him $1.6
million a year for life. And Treasury Secretary Snow's $33 million pension
prize came despite the fact that his company's stock underperformed its
competitors' by two-thirds over the last 11 years of his reign.

 The picture is far bleaker for those down on the factory floor or crammed
inside an office cubicle, where ordinary workers are seeing their pension
plans slashed or eliminated altogether.

 Less than half of those currently employed in the private sector have any
kind of pension coverage. And 40 percent of those companies that do offer
pension plans are exploring the possibility of reducing benefits. Companies
are also cutting back on matching contributions to their employees' 401(k)
accounts. Some, like Ford, Goodyear Tire, and Charles Schwab, have decided
to completely do away with matching contributions. They probably need the
extra cash for their executives.

 There is also a major push underway, spearheaded by the Bush
administration, to allow companies to switch their existing traditional,
defined benefits pension plans to so-called cash balance plans, which could
lead to a serious loss in benefits for older workers.

 And even those workers who are able to hang on to their defined benefits
pensions can't rest easy: it turns out that the vast majority of corporate
pension funds are critically underfunded. In fact, of the 343 S&P 500
companies that offer traditional pension plans, close to 90 percent of them
are running a deficit. And we're not talking about being a few dollars
short. General Motor's pension plan is $25.4 billion in the red while Ford's
has a shortfall of $15.6 billion. All told, the S&P companies are $206
billion in the hole; that's a shift of $457 billion since 1999 when the same
pension funds had a collective surplus of $251 billion.

 In just a few short years, the nest eggs of the American worker have gone
from sunny side up to seriously scrambled.

 In an effort to level the lopsided pension playing field, Rep. Bernie
Sanders (I-Vt) and Rep. George Miller (D-Calif), along with 124 co-sponsors,
have introduced legislation that would make it harder for companies to force
older workers to switch to cash-balance pension plans. To drive his point
home, Sanders showed how such a conversion would affect the pensions of his
fellow Congressmen. Denny Hastert, for instance, would see his $540,000 lump
sum benefit shrink to $164,000. And Tom DeLay's retirement pay-out would be
cut by 60 percent, shriveling from roughly $608,000 to $251,000.

 "If members of Congress think that cash-balance payments are good for
American workers," declared Sanders, "then they must believe that
cash-balance pensions are good for themselves."

 I couldn't agree more. And the same goes for those pension-protecting
executives at American Airlines. If their future is worth safeguarding, then
so is their workers' present. Just think how many jobs the $41 million they
put into that trust fund could save.

------------------------------------------------------------------------



 Arianna Huffington is the author of "Pigs at the Trough: How Corporate
Greed and Political Corruption are Undermining America." For information on
the book, visit http://www.pigsatthetrough.com/

 (In accordance with Title 17 U.S.C. Section 107, this material is
distributed without profit to those who have expressed a prior interest in
receiving the included information for research and educational purposes.)

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