By GREGORY N. HEIRES
As traditional pensions disappear and millions of Americans worry about being unable to enjoy a comfortable retirement, the typical CEO has a nest egg of nearly $49.3 million.
The largest 100 CE0 retirement packages were worth a combined $4.9 billion in 2014. That means the total nest egg of 100 individuals equals the retirement savings of 50 million families, or 41 percent of American families.
The country’s growing retirement divide is the subject of a recent report by the Institute for Policy Studies and the Center for Effective Government. The study analyzed the retirement packages of CEOs included in Security and Exchange Commission filings of publicly held Fortune 500 companies.
“The retirement divide is not the result of natural law, but rather the rules established that disproportionately reward company executives far more than ordinary workers,” according to the report, “A Tale of Two Retirements.” In other words, corporations have changed the rules at the expensive of millions of Americans while taking care of their CEOs.
In the early 1990s, 35 percent of private sector workers had defined benefit pensions, which guarantee lifetime monthly payments. Last year, only 18 percent of private sector workers had a traditional pension plan, a result the shift to 401(k) plans and other factors. Meanwhile, 52 percent of CEOs are covered by a company pension plan.
The Failure of the 401(k) Experiment
Unlike traditional pensions, risky 401(k) plans don’t guarantee monthly payments based on years of service and salary but rather impose the responsibility of saving and investment choices on employees.
Unfortunately, for millions of Americans, the 401(k) experiment has clearly failed:
• In 2013, the median balance of 401(k) plans was $18,433, enough to provide a monthly retirement payment of $104.
• Nearly 50 percent of American workers don’t even have access to a retirement plan at work.
• Among workers aged 50-64, 29 percent don’t have a defined benefit pension, 401(k) account or IRA, which means they will be wholly dependent on Social Security, which provides for an average monthly payment of $1,223.
Stagnant wages and the limited capacity of ordinary Americans to save for their nest eggs explain part of the retirement divide. But while ordinary workers with 401(k) accounts have a limit on the pre-tax pay they can put aside for their account (currently $24,000 a year for workers nearing retirement), CEOs are able to contribute however much they want to executive tax-deferred compensation plans in addition to their 401(k) accounts.
“While slashing worker pensions, CEOs take advantage of special loopholes that allow them to invest unlimited amounts of compensation into tax-deferred accounts set up by their employers,” the IPS and Center for Effective Government report says.
In 2014, 341 Fortune 500 CEOs had $3.2 billion in deferred compensation accounts. They saved $78 million in taxes that year by making deposits in their accounts.
“These massive nest eggs are not the result of CEOs working harder or investing more wisely,” the report says. “They are the result of rules intentionally tipped to reward those already on the highest rugs of the ladder.”
Corporations Target Employee Benefits After 1981 Traffic Controllers Strike
Today’s growing retirement divide dates from the 1980s as corporations began cutting employee benefits after President Ronald Reagan broke the air traffic controllers strike in 1981. Before then, in the decades after World War II, workers won traditional pensions and other benefits through strikes and collective bargaining. And by 1960, 41 percent of private sectors workers were covered by defined benefit plans, up from 15 percent in 1940.
Corporations aimed to boost earnings and stock prices by reducing their employee retirement costs. They have frozen defined benefit plans, closed the plans to new workers, adopted 401(k) plans and converted traditional plans to cash balance plans. (Cash balance plans don’t guarantee workers a monthly payment upon retirement.)
Over several decades, corporations have accomplished their goal of reducing their pension obligations, leaving millions of Americans uncertain that they will be able maintain their standard of living in their retirement years.
Today, many low-wage workers can’t afford to put enough into their 401(k) accounts even when companies offer generous matches. In 2014, one in four workers didn’t save enough to receive the $1,336 typical company match.
As CEOs enjoy multi-million dollar nest eggs, 37 percent of working age whites, 62 percent of African Americans, and 69 percent of Latinos don’t have any retirement savings.
“Our retirement crisis,” said National Jobs for All Coalition Chair Trudy Goldberg,”cannot be addressed in a political and economic vacuum. Full employment or jobs for all at living wages and a stronger labor movement are critical to the fight for retirement security. Low pay and periods of unemployment and involuntary part-time employment are all-too-common in today’s lean and mean labor market. And they obviously reduce pension and Social Security benefits. ”
“Living-wage campaigns and pressuring employers to provide better pension benefits are contributing to the struggle for pension rights,” Goldberg said. “It’s encouraging that some states are setting up pension plans. But we must continue to support policies that boost the standard of living of working families so that they can not only make ends meet but put aside money for an economically secure retirement. Because employment at living wages is the foundation of retirement security, pension advocates need to make full employment a key component of their struggle.”
Ending unlimited tax-deferred compensation for corporate executives, expanding Social Security, making it easier for unions to organize and establishing universal state-run pensions are key steps that would address the retirement divide, according to “A Tale of Two Retirements.”
But those policies will only be possible with a reordering of political power in Washington and the success of grassroots groups like the fast-food workers, whose prospects for a decent retirement will be brighter if they win their struggle for higher pay and union representation.