Welcome Ellen E. Schultz (RetirementHeist) and Host, Dean Baker (CEPR-BeatThePress)

[As a courtesy to our guests, please keep comments to the book and be respectful of dissenting opinions. Please take other conversations to a previous thread. - bev]

Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers

What Will They Do When the Money Runs Out?

Comment by Dean Baker

Ellen Schultz has given us a fascinating account of the ways in which corporate America has been able to game legal and accounting rules to emasculate the private pension system. It was only a few decades ago that a secure pension was a staple of middle class life. Workers in middle class jobs, whether in offices, construction, or manufacturing expected to have a pension in retirement to supplement their Social Security income. In many cases, the pension would provide the larger portion of their income, with the Social Security benefit being the supplement.

We should be careful not to glorify the pre-1980 period as a golden age of pensions. Many pensions were not especially generous. Women and minorities were far less likely to have a pension than white men. And, many workers walked away from jobs with nothing after just missing a vesting period by a year or even a month.

Nonetheless, in 1980, roughly half of the work force had a defined benefit (DB) pension on their job. Today, the figure in the private sector is less than 20 percent and it is dropping rapidly. This shift reflects a great loss in the level of retirement security that workers can expect. The 401(k) system of defined contribution has not come close to replacing the losses from the old DB system. The percentage of workers who have access to any retirement plan at their jobs, including a 401(k), is roughly the same as the percentage who had a DB plan in 1980.

We know that the vast majority of workers end up accumulating little in their 401(k) accounts. The median holdings at age 60 for those with accounts is less than $150,000. This is enough to provide a retirement income of about $750 a month. And three quarters of retirees will get less. This is not a story of a middle class that will enjoy a middle class life-style in their retirement.

Ellen Schultz’s book is the story of how we got from there to here. From a world where at least a substantial segment of the population could count on a defined benefit pension to give them a substantial degree of retirement security to world in which the majority of the middle class are looking at a retirement where they are not too far above the poverty line.

The book is essentially a menu of ways in which companies have found to scam the pensions of their workers and the code in order to increase corporate profits and fatten executive compensation. I will just note two of the issues raised.

First, under the law, pension funds are supposed to be kept strictly segregated from the rest of the corporate operation. The money in the fund is to be used only to provide retirement benefits for workers. This fact led to great pain for corporate managers in the 90s, as a surging stock market led many pension funds to be seriously overfunded. (Since this was a stock bubble, the overfunding was to a large extent an illusion.)

However, as the book points out, smart managers found ways around this restriction. There were a number of corporate takeovers in which pension funds were used to pay early retirement benefits to workers who were being laid off. In effect, the takeover artists were using the pension funds to provide severance payments, which is clearly in violation of the law. But, no one was looking.

My other favorite in this book is the story of “dead peasant” insurance policies. People may have heard of these in Michael Moore’s movie, Capitalism: A Love Story. The basic idea is that large companies buy insurance policies on their lower level employees, and make themselves the beneficiaries. In general the employees do not even know about the policy.

Moore left this as just a morose tale of corporate greed, with companies making money off the death of their employees. However, this misses the real story.

The real story is why dead peasant policies are profitable; after all, insurance companies are not giving presents to anyone, even other large corporations. Schultz gives us the secret. Dead peasant insurance policies are a way in which companies can put aside money to accumulate tax free to cover the retirement benefits of their top level executives. Since people will die at a relatively predictable rate, companies know how many dead peasant policies they have to take out in 2000 to pay benefits in 2020.

There are many other great tales of creative accounting in this book. People should go through them to see what happened to their parents’ pension or their own.

I’ll just conclude by throwing out two obvious questions for Ellen:

How do you think pension policy should change in the decade ahead?
How do you think pension policy actually will change?

136 Responses to “FDL Book Salon Welcomes Ellen E. Schultz, Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers”

BevW February 5th, 2012 at 1:50 pm

Ellen, Welcome to the Lake.

Dean, Thank you for returning and for Hosting today’s Book Salon.

Ellen Schultz February 5th, 2012 at 1:57 pm
In response to BevW @ 1

Hi Bev. Looking forward to the chat.

dakine01 February 5th, 2012 at 2:00 pm

Good afternoon Ellen and welcome to FDL this afternoon. Dean, welcome back!

Ellen, this is rather timely as just yesterday I saw an article about AMR (American Airlines) wanting to use their current bankruptcy to get out from under their pension obligations.

American Airlines has saved $2.1 billion since 2006, thanks to two congressional measures that allowed it to reduce contributions to its pension plans. The company said it would make up any shortfall later.

Later has come, but there’s been a change in that plan.

American Airlines, whose parent company filed for bankruptcy in November, said this week that it wants to terminate its four pension plans for 130,000 workers and retirees and ask the federal government’s Pension Benefit Guarantee Corp. to bail out its unfunded pension obligations to the tune of $9 billion. It would be the largest PBGC bailout ever. Without the congressional relief, the gap would have been smaller, the PBGC said.

The move, which needs approval from a New York judge, has angered the PBGC and labor unions representing American Airlines workers, in part because the airline had $4 billion in cash when it filed for bankruptcy and because it hasn’t yet made any proposal for restructuring its massive debt to financial institutions.

Are we going back to the days when old people are just put out on ice flows to drift away or go up into the hills/mountain to die out of sight?

DWBartoo February 5th, 2012 at 2:01 pm

Thank you, Ellen and Dean, for joining us this evening (here on the right coast).

DW

Ellen Schultz February 5th, 2012 at 2:05 pm

Large employers–especially airlines– have a history of failing to fund their plans when they’re in financial trouble, then dumping the plans on the PBGC. This is not only a burden on the PBGC, but causes many employees to lose a chunk of their pensions. Not only don’t they fund adequately, but the companies continue to award huge comp packages to their top executives. The PBGC knows this, but can’t force an employer to contribute.

And yes, the attitude at many companeis is that the retirees are on their own.

Dean Baker February 5th, 2012 at 2:07 pm

For my part, I would say that this sort of PBGC scamming is outrageous. The top management of a company that can’t meet their pension obligations are the ones who should be pushed out on an ice flow as far as I’m concerned.

We have a real problem when bankruptcy can be used as a normal business strategy. Bankruptcy should mean that the execs who messed up lose their jobs (and pensions).

Dean Baker February 5th, 2012 at 2:08 pm

Ellen,

what did you consider the most outrageous and/or creative scam on pensions that you uncovered?

dakine01 February 5th, 2012 at 2:08 pm
In response to Ellen Schultz @ 5

As a technical note: there is a “Reply” button in the lower right hand of each comment. Pressing the “Reply” will pre-fill the commenter name and comment number being replied to and makes it easier for everyone to follow the ‘conversation.’

Note: some browsers do not like to let the Reply function properly if it is pressed after a page refresh but before the page has completed loading

Ellen Schultz February 5th, 2012 at 2:09 pm

The GAO found in 2010 that at ten of the largest bankruptcies in recent years, the companies had awarded at least $350 million to their top executives in the period running up to the bankruptcy. So it’s pretty clear that the only retriees not being set adrift on ice flows are the top executives.

PeasantParty February 5th, 2012 at 2:09 pm

Hello Ellen, thanks for being here.

Dean, glad you are hosting this evening.

Ellen,

Do you still find that companies invest their pension plans in their own companies? I know that there has been law put in place to stop this, but we all know they don’t stop doing things that create money out of thin air for them.

eCAHNomics February 5th, 2012 at 2:09 pm

Why are debt obligations legally binding but not labor contracts?

dakine01 February 5th, 2012 at 2:10 pm
In response to Dean Baker @ 6

Unfortuantely, as we all know, they are most likely to get multi-million dollar bonuses and/or golden parachutes for having taken their firms into bankruptcy.

Rewarding the extra failure as always.

DWBartoo February 5th, 2012 at 2:10 pm
In response to Dean Baker @ 6

That would require the resurrection of the notion of “shame”, Dean, which is very unlikely in this Age of the Divine Right of Money.

DW

Bruce H. Vail February 5th, 2012 at 2:10 pm

I was struck by the news story Thursday in which PBGC’s Joshua Gotbaum basically put American Airlines on notice that PBGC would not allow them to get away with any funny business over the pensions.

This seemed unusual to me. Was it? Can a more aggressively pro-worker PBGC actually have any impact?

DWBartoo February 5th, 2012 at 2:12 pm
In response to eCAHNomics @ 11

It’s part of doing “Gawd’s Work”, eCAHN, Lloyd could tell ya.

;~DW

Ellen Schultz February 5th, 2012 at 2:12 pm
In response to Dean Baker @ 7

The most creative practice has been gaming the discrimination rules, which say that employers can’t favor the highly paid in the regular retirement plans. Employers use loopholes in the discrimination rules to discrimination in favor of the top executives. This has enabled them to use hundreds of millions of dollars in pension assets to pay executive benefits.

Dean Baker February 5th, 2012 at 2:13 pm
In response to eCAHNomics @ 11

In principle the PBGC was supposed to give pensions greater protections. There were some bankruptcies in the pre-PBGC days that left workers largely out in the cold. The idea of PBGC was to make companies pay for insurance. However, it requires a serious regulator, which the PBGC has not been.

btw, this is not a question of government versus the market, this is a case of companies being allowed to rip off the workers and/or the taxpayers, end of story.

Ellen Schultz February 5th, 2012 at 2:13 pm
In response to PeasantParty @ 10

Under pension law, companies can put no more than 10% of thier own stock or assets ito the pension plan. But that’s still a huge amount, and increases risk in the plan.

Scarecrow February 5th, 2012 at 2:13 pm

Welcome Ellen and Dean. Fascinating but infuriating book. Every chapter details how a different scam worked. The overall picture suggests corporate America is essentially a criminal conspiracy to loot employee retirements systems and scam the IRS all through fraudulent means — that is, the pension experts know what they’re doing is fraudulent and its success depends on deception — it’s too complicated to explain, so workers don’t realize what’s happening, unless they all actuarial experts.

You paint a huge criminal conspiracy, happening in front of our eyes. And it’s continuing. What is to do done????

Dean Baker February 5th, 2012 at 2:14 pm

Ellen,

can you briefly outline the story of “dead peasant” insurance policies for people who have not read the book. These were mentioned in Michael Moore’s movie, Capitalism: A Love Story, but I think he missed the punchline.

eCAHNomics February 5th, 2012 at 2:16 pm
In response to Dean Baker @ 6

I would not mind bribing the scumbags at the top to get out of the way, were it not for the moral hazard.

PeasantParty February 5th, 2012 at 2:16 pm
In response to Ellen Schultz @ 18

Thank You. I just wanted to confirm what I thought was still happening. Also, Scarecrow asks a very good question that we all would like to know. (What is to be done? How do we stop the swindles?)

eCAHNomics February 5th, 2012 at 2:17 pm
In response to DWBartoo @ 15

I had to ask, ya know. The obvious Qs to bring into full view the obvious As. Let it be pretend-hidden no more.

Ellen Schultz February 5th, 2012 at 2:18 pm
In response to Dean Baker @ 20

Not to brag, but Michael Moore based that section of his book on my article.

“Dead peasants” policies refer to life insurance contracts employers take out on workers. The policies are used to finance executive deferred compensation and executive pensions. There are billions in the contracts, and when employees, ex-employees and retirees of the comapneis die, the death benefits will go to the companies tax-free. TThe large banks took out billions during the mortgage bubble, and the practice is thriving. About one-third of all life insurance is “dead peasant” insurance.

PeasantParty February 5th, 2012 at 2:18 pm
In response to Dean Baker @ 20

I resemble that! (wink) Many large corporations like the one I used to work for enjoyed benefits of insurance on their peasant/employees. Especially ship captains traveling off the coast of Somalia.

Scarecrow February 5th, 2012 at 2:19 pm

Ellen/Dean, it was shocking to read all the different ways large corps changed their pension schemes to essentially loot them while actively trying to deceive their employees so they wouldn’t realize the future benefits were being diminished — the parallel today seems to be the Ryan plan to replace Medicare — but the difference is, the scams on pensions looks like criminal fraud that violate the intent of current law —

If this is true — it was fraud — why haven’t there been more prosecutions? Was government policy implicitly favoring this trend?

DWBartoo February 5th, 2012 at 2:19 pm
In response to Dean Baker @ 17

What is it called when the government and corporations are in cahoots?

Just can’t seem, somehow, to recall the name … the “results”, though, look a “great deal” like oligarchy …

DW

eCAHNomics February 5th, 2012 at 2:20 pm
In response to Dean Baker @ 17

I knew all that; asked bc I wanted to make it stark and explicit. Thanks for going along & putting responsibility where it belongs.

Think of the good it would do if one “WH correspondent” (heh, why did they have to develop a special vocabulary for FoPOTUS) ever asked that at a presser.

Ellen Schultz February 5th, 2012 at 2:20 pm
In response to PeasantParty @ 22

How to stop these practices? Pension law says that assets in a pension plan are to be used solely for the benefit of the participants. Congress needs to enforce that law.

Dean Baker February 5th, 2012 at 2:21 pm

Do you have any idea who came up with the idea of dead peasant policies? I assume there is some guy [probably] at one of the major insurers who got some huge bonus for thinking up such a great idea. I thought it could have made a great interview in Moore’s movie to talk this person on their estate or yacht where they could explain the great contribution they had made to society.

DWBartoo February 5th, 2012 at 2:21 pm
In response to eCAHNomics @ 23

Truth, eCAHN, truth.

As SD says, the truth shall set us free, but first, it has to piss us off …

DW

PeasantParty February 5th, 2012 at 2:21 pm

Ellen,

I have not had the opportunity to read your book yet. However, you started your example with American Airlines and that is a good example to use here. During the research for your book did you happen to go back as far as the late 90′s? If so, were you able to ascertain the real amount of our tax dollars George Bush gave them in the bailout?

Bruce H. Vail February 5th, 2012 at 2:23 pm

I remember reading that Dead Peasants insurance had been curtailed. Is this not the case?

How do you find out if a specific company has invested in DPI?

PeasantParty February 5th, 2012 at 2:23 pm
In response to DWBartoo @ 27

Here! I’ll refresh your memory. It starts with an “F”, and ends with a “T”. One of history’s best examples is Barack, er Benito Mussolini.

eCAHNomics February 5th, 2012 at 2:24 pm
In response to Ellen Schultz @ 29

Congress needs to enforce that law.

Bwahahahahah.

Not making fun of you, just reflecting reality.

Insurance is the ultimate moral hazard industry, esp medical insurance. PBGB ditto. Fox-chickens. We can expect nothing until the next revolution.

Tammany Tiger February 5th, 2012 at 2:25 pm

One of the more distasteful aspects of 401(k)s and similar plans is that they’re an open invitation to sharks and con men to take advantage of most workers’ lack of knowledge of financial products. And they do so at a time when regulation of the financial industry is pathetically weak.

Dean Baker February 5th, 2012 at 2:27 pm
In response to eCAHNomics @ 35

It is important to point out that this is an issue of law enforcement. I think many liberals/progressives undermine their case when they start arguing about morals and values. We can have those arguments, but that is not the issue here. We are allowing corporations to break the law and steal money. If you saw a few of the big boys locked up for 10-20 years it would end their ripoffs quickly.

Ellen Schultz February 5th, 2012 at 2:27 pm
In response to Dean Baker @ 30

The practice was initially legitimate — it was called “key man” coverage, and partners in a small firm might take out life insurance on each other, because the business would suffer if one of them died. Then some genius in with the insurance industry or the accounting industry figured out that companies could take out policies on thousands of employee, all the way down to the janitors’ level, and use the policies for tax shelters.

In the 1990s and 2000s, companies began telling lawmakers that they use the policies to finance “retiree benefits,” leading them to believe they were talking about retiree health benefits, when, in fact, they were using the policies for executive benefits.

PeasantParty February 5th, 2012 at 2:28 pm
In response to Ellen Schultz @ 29

Pfft! Congress can’t enforce their own ethics or laws. I think that maybe we should create a coalition of retired people to fight for what is due them.

Ellen Schultz February 5th, 2012 at 2:29 pm
In response to PeasantParty @ 32

Much of the books covers the 1990s, when these practices heated up.

Dean Baker February 5th, 2012 at 2:29 pm
In response to tammanytiger @ 36

It would be great to see some sort of public 401(k) fund, ideally with a guaranteed cash balance type option. I don’t think that is an impossible lift politically. A lot of small businesses would welcome this because they don’t want to deal with setting up a 401(k) plan and they know that they are a disadvantage in retaining workers if they don’t offer some sort of retirement package.

PeasantParty February 5th, 2012 at 2:30 pm
In response to tammanytiger @ 36

TWOOPH! I have instructed my young boys that if they must do a 401K, they should contribute after taxes so that when they are my age they can use the capital gains tax rate instead of regular income tax.

Ellen Schultz February 5th, 2012 at 2:30 pm
In response to Bruce H. Vail @ 33

A 2006 law required employers to begin telling employees if they own a policy on them. But the law isn’t retroactive, so there are millions of people covered who have no idea, and one can’t force the company to disclose it. The book has examples of survivors who found out by accident, and sued the former employers.

Scarecrow February 5th, 2012 at 2:31 pm

Ellen — your stories of how companies like IMB, AT&T, Lucent, Verizon, et al scammed their employees also reveal that for most of these companies, they started in the 1990s with fully (even overly with surpluses) funded pension plans — they had more than enough to pay full benefits for decades, just like Social Security. Yet they all came up with schemes to loot the surplus by concealing from employees that’s what they were doing and even though that appeared to violate the law. You show conversations from conference speakers of the industry bragging about how to confuse and mislead employees. You’re describing fraud, and there are smoking guns in every chapter.

I didn’t get to a chapter on how law enforcement picked up on this and starting putting corporate heads and heads of Human Resources departments and the consultants who advised them on how to mislead everyone — in jail — did I miss something?

Bruce H. Vail February 5th, 2012 at 2:33 pm

Did you see my question about Gotbaum?

eCAHNomics February 5th, 2012 at 2:34 pm
In response to Dean Baker @ 37

There is no law enforcement in the U.S. anymore. Well, except for 99ers.

Phoenix Woman February 5th, 2012 at 2:36 pm

Ellen, is the desire for the thieving companies to normalize pension theft part of the drive to attack the pensions as well as the salaries of Federal and State workers? It seems as the public employees among us are the last remaining members of the middle class, and corporate America and their servants in Congress are eager to kill them off.

Bruce H. Vail February 5th, 2012 at 2:38 pm
In response to Ellen Schultz @ 43

So the practice has not been curtailed legally, only subjected to a limited disclosure requirement?

I was involved in a research project years ago that attempted to uncover whether certain employers with high injury/death rates among their workers were buying this insurance to determine whether employers were betting on the early demise of their own workers. This research led no where.

Dean Baker February 5th, 2012 at 2:38 pm
In response to Phoenix Woman @ 47

It is incredible, although predictable, that the right would go after public sector pensions as an outrageous benefit now that they have almost eliminated them in the private sector. Hopefully they can be stopped. It is great that the attacks on Social Security have been beaten back thus far.

eCAHNomics February 5th, 2012 at 2:38 pm
In response to tammanytiger @ 36

The only people prosecuted for fraud were those who defrauded rich peeps.

Madoff, I hear via grapevine, was thought to be ‘earning’ his Ponzi scheme returns by trading on inside information. First female partner of GS lost $22 million.

DWBartoo February 5th, 2012 at 2:39 pm
In response to Dean Baker @ 37

Agreed, Dean, however there IS no functioning Rule of Law.

Do you honestly imagine that we shall see any of the “Big Boyz and Gurlz” face serious prison time?

The statutes of limitation will be run out … and then we’ll shall have another serious “crash” …

Even if the public wants justice, serious justice, the political class has neither the will nor the inclination to enforce the law, and neither, apparently, does the judicial “branch”.

Accountability is for the little people and suckers.

I seriously hope that I am wrong about this, but the Rule of Law is a foundational principle to a civil and just society.

DW

blackbeary February 5th, 2012 at 2:39 pm
In response to eCAHNomics @ 46

The plunder seems to be in direct proportion to number of lawyers.

Ellen Schultz February 5th, 2012 at 2:39 pm
In response to Scarecrow @ 44

Many of the practices were legal–i.e., siphoning money from the plans for restructuring; or were borderline legal (using money in the plans to pay top executives). Many weren’t, but employees and retirees have had a tough time prevailing in the courts.

For example, companies are supposed to disclose benefit cuts. But Cigna deliberately deceived employees about the fact that the new pension was cutting their benefits by as much as 50%, and to date the company has not paid a penalty.

Employees also sued for age discrimination (because the pension changes froze the pension of older workers, but not younger ones). The appeals courts have concluded that was legal.

eCAHNomics February 5th, 2012 at 2:40 pm
In response to Dean Baker @ 49

Just need a few more ‘shocks’ to make the peasants succumb. Like Greece.

realitychecker February 5th, 2012 at 2:40 pm
In response to DWBartoo @ 27

Rhymes with “gnashism.”

Scarecrow February 5th, 2012 at 2:40 pm

Q. for both Dean and Ellen: Ellen’s examples of how all these companies once had fully funded pension plans with surpluses, even accounting for the growing age and baby boomers, etc, suggests that the private economy was fully capable of supporting defined benefit pensions that did a decent job on retirement without killing the companies — that seems completely opposite of what corporations and the Chamber of Commerces tell us today; now we’re told that we can’t sustain or be competitive with such a system, because it’s far too generous and those employees just don’t deserve those big pensions.

So how do you sort out the macro policy implications? What does this history tell us?

eCAHNomics February 5th, 2012 at 2:41 pm
In response to Scarecrow @ 44

One of my unanswered Qs of the decade of the stock market bubble is who did those ‘excess’ returns belong to. Oh well.

Teddy Partridge February 5th, 2012 at 2:41 pm

Bottom line, this is about theft.

What is it about theft that is so hard to prosecute? We see the same thing with the fraudulent mortgage lending and securitization. What is so hard for our regulators and department of Justice (ha!) to enforce the laws against theft, embezzlement and misuse of funds?

I’m really looking forward to reading this book. On a related note, my 83-year old mother is still trying to get my dad’s employer to pay out his life insurance policy, more than six years after his death. They say they’ll send a check but then they don’t. It’s outrageous.

Kathryn in MA February 5th, 2012 at 2:42 pm
In response to Scarecrow @ 44

Wait a second, wait a second, **flipping through newspaper** I’m sure i was just reading something…

eCAHNomics February 5th, 2012 at 2:44 pm

Quibble: not theft, looting. Much more, appropriate, emotional content in the vocabulary.

Tammany Tiger February 5th, 2012 at 2:44 pm
In response to Scarecrow @ 44

Mrs. Tiger worked at a very large company that was transitioning from a traditional pension plan to a defined contribution plan. Two things smelled very fishy to her First, the 24-year-olds the company sent out to explain the “new and improved” plan (yes, the company actually used that phrase) didn’t know the first thing about investing. Second, about the same time the company rolled out the new plan, it began pushing employees out the door (carrot: buyout, with minor sweeteners; stick: threat of less-sweet buyouts and if they elected to stay).

Dean Baker February 5th, 2012 at 2:44 pm
In response to Scarecrow @ 56

In standard economic theory, pensions are simply deferred wages. Companies are not paying anything more, they are just paying it in a different form. When they play games so that the pensions are not there this is simply a form of theft. Workers put in time expecting their pensions, the companies are just stealing part of their wages.

Ellen Schultz February 5th, 2012 at 2:44 pm
In response to Phoenix Woman @ 47

Public employee plans are being blamed for the financial woes of states and municipalities, but for the most part, the plans aren’t as underfunded as they’re made out to be (with glaring exceptions, including Rhode Island, Ohio and Illinois, of course). Nor are the benefits for the majority of public employees as rich as they’re described to be.

Banks, insurers and others would like to see the system dismantled, and have public employee savings go into 401(k)-type plans that could generate fee revenue for the financial firms.

Scarecrow February 5th, 2012 at 2:45 pm
In response to Ellen Schultz @ 53

Yes, you have a fascinating/scary discussion of how Cigna has managed for years to delay replenishing the pensions benefits it cut for its employees, even though in theory, the Supremes seemed to side with employees in sending the case back. And meanwhile, they cut other benefits. Was there ever a criminal case to go along side the civil ones? To sorta focus their attention?

Dean Baker February 5th, 2012 at 2:48 pm
In response to Ellen Schultz @ 63

Yes, this is exactly right. There has been a huge effort by the right to play up the shortfalls in public pensions. For the most part these shortfalls are not that large and the shortfall that is there is mostly the result of the downturn.

It’s a great story, these guys sink the economy and then turn around say that they have to gut pensions, because they are underfunded.

HotFlash February 5th, 2012 at 2:49 pm
In response to Ellen Schultz @ 29

“Congress needs to enforce that law.” eChan at 35 x 2! But, isn’t it the job of the DOJ to enforce the law?

Dean Baker February 5th, 2012 at 2:49 pm
In response to Dean Baker @ 65

btw, they also have been making up nonsense about pensions making overly optimistic return assumptions. I was arguing that the return assumptions were overly optimistic back when that was true (i.e. before the market crashed), it is not true now.

Ellen Schultz February 5th, 2012 at 2:49 pm
In response to Scarecrow @ 64

Criminal cases are rare, and generally involve a small company owner who takes the pension or 401(k) money to pay for personal debts/expenses/etc.

HotFlash February 5th, 2012 at 2:50 pm
In response to Bruce H. Vail @ 48

Most interesting, Bruce. How/when did the trail grow cold?

Tammany Tiger February 5th, 2012 at 2:50 pm
In response to HotFlash @ 66

They’re too busy busting medical marijuana clinics to go after corporate thieves.

Ellen Schultz February 5th, 2012 at 2:51 pm

Have you filed a complaint with the state insurance regulator?

HotFlash February 5th, 2012 at 2:52 pm
In response to eCAHNomics @ 50

“First female partner of GS lost $22 million.”

Yeah, I bet there were high-fives all around when that happened.

DWBartoo February 5th, 2012 at 2:54 pm
In response to Ellen Schultz @ 68

Might you explain why criminal cases are “rare”, Ellen?

If, as Dean correctly says, it is a question of law enforcement, then should not “examples” be made?

Or, is my point about the Rule of Law, @51, essentially correct?

DW

PeasantParty February 5th, 2012 at 2:54 pm
In response to tammanytiger @ 61

I had the same experience at Maersk Shipping Lines. They revamped to the new and improved model on both Pensions and 401K matches. Funny, how the older workers were suddenly “stream lined” out the door.

Ellen Schultz February 5th, 2012 at 2:55 pm
In response to Dean Baker @ 67

Dean’s right. The same consultants who help employers play games with the assumptions in their pension plans are also helping critics of public plans exaggerate the problems.

PeasantParty February 5th, 2012 at 2:59 pm

Ellen,

Does your new book connect these dots to the most recent qulley jumping politicians are doing for Corporations regarding removing regulations in order for them to operate in the US?

Ellen Schultz February 5th, 2012 at 3:00 pm
In response to DWBartoo @ 73

It’s a simple matter to show actual theft –i.e., and owner who withdraws all the 401(k) money and runs off to Rio. But the maneuvers I write about –where hundreds of billions of dollars are involved– are complex, and involve gray areas in the law. Violations aren’t criminal, but regulatory. The regulators (IRS, Treasury)could crack down, but they’re outgunned and understaffed.

Scarecrow February 5th, 2012 at 3:00 pm

There’s an excellent discussion in the book of all the whining the Chamber of Commerce and corporate sponsors made about the supposedly adverse tax consequences of the Affordable Care Act — yours seemed the best, easiest to understand explanation I’ve seen of how they were whining about losing something they didn’t have and didn’t deserve anyway. But the media didn’t get it. Can you talk about that a bit, please?

Ellen Schultz February 5th, 2012 at 3:01 pm
In response to PeasantParty @ 76

No, the book focuses on what employers have been doing.

Tammany Tiger February 5th, 2012 at 3:03 pm
In response to PeasantParty @ 74

Mrs. Tiger was also subjected to the presentation of a “new and improved” health coverage plan (with the same clueless 24-year-olds doing the presentation), but that’s another discussion for another day.

Dean Baker February 5th, 2012 at 3:03 pm
In response to Ellen Schultz @ 77

yes, the issue here (at least for the DB pensions) is that the government is now offering insurance and is responsible for making certain that the pensions it is insuring are properly maintained. It does not take this responsibility seriously because it is happy to have corporations rip off the government.

Ellen Schultz February 5th, 2012 at 3:06 pm
In response to Scarecrow @ 78

When the Medicare prescription drug act passed, employers complained that if they didn’t get some taxpayer money to help pay for the prescription drugs that are in their retiree health plans, they’d pull the plugs on the plans. So Congress awarded a huge subsidy. The subsidy was not only free money, but thanks to a loophole, the employers could deduct the free money. Sweet.

When the Affordable Care Act passed, employers retained the subsidy, but lost the ability to deduct the money they got. They than complained that the Heath Care Act had cost them billions. The “billions” represented their estimate of the value of the future tax deduction they would have had for the free money.

DWBartoo February 5th, 2012 at 3:07 pm
In response to Ellen Schultz @ 77

So the “intent”, Ellen, IS to engage in theft, and such “patterns” are deliberately not perceived by those “responsible”?

Or, do shades of intentional gray, as “complex” rules and complex “maneuvers” must depend upon, get deliberately “inserted” and “understood” by the “astute”?

Either there is a real “problem”, or such “plucking” is simply “permitted”.

It CANNOT be claimed to be “accidental” nor “harmless”.

DW

HotFlash February 5th, 2012 at 3:09 pm
In response to Ellen Schultz @ 77

“The regulators (IRS, Treasury)could crack down, but they’re outgunned and understaffed.”

Ho-kay, sounds like the SEC and the FBI’s– if that is the case, we are just about able to stamp our feet and whistle. Good luck to us!

Bruce H. Vail February 5th, 2012 at 3:10 pm
In response to HotFlash @ 69

I hope Dean or Ellen can answer more fully.

At the time of the research we did 2001-2002, there was no requirement that any company make any disclosure of DPI, either to the individual employee, to the stockholders through SEC regulation, or to state insurance departments. As researchers, we were faced with asking the companies directly, and accepting whatever answer (or non answer) that they offered.

Ellen Schultz February 5th, 2012 at 3:12 pm
In response to DWBartoo @ 83

The acts are intentional. As the book shows, employers worked closely with consulting firms to figure out how to carry out these moves, but also to ascertain how much money they’d get, and how much their earnings would be boosted. And they worked with top law firms to figure out how to skate around the age discrimination rules, to unilaterally break union contracts, and to unfairly deny benefits. The irony is that employers can use pension assets to pay the consultants and lawyers who help them turn retiree benefits into benefits for the company.

Scarecrow February 5th, 2012 at 3:14 pm
In response to DWBartoo @ 73

DW — just my take: what I see as criminal fraud, the corporations see as creative ambiguity in the law. The pension laws seem to protect employees from having their current benefits reduced, but what about future benefits? If you change the formula by which future benefits accrue, have you reduced benefits in the way Congress meant? And if you conceal from employees you’re doing that, is it fraud or just not explaining it clearly?

So another way to look at this is to ask, what would unions do with these games? Answer: they’d negotiate contracts that clarify these items to make sure you can’t reduce future benefits and methods for calculating them without the union agreeing by contract. But if you destroy the union’s right to negotiate on these matters, you leave the legal field open to what looks like fraud but never gets prosecuted as fraud. So crippling unions works hand in hand with weakening law enforcement, and workers get screwed both ways — and Team Corporate seems to be doing both with increasing success.

DWBartoo February 5th, 2012 at 3:15 pm
In response to Ellen Schultz @ 86

So it is permitted, Ellen, not by the “agencies” you mention, but by the executive, congressional, and judicial branches of the federal government, who bear ultimate responsibility?

DW

Ellen Schultz February 5th, 2012 at 3:16 pm
In response to Bruce H. Vail @ 85

Banks are required to disclose, in their quarterly call reports, the total amount of BOLI (bank-owned life insurance) they hold on employee/employees.

And as of 2006, employers are supposed to disclose annually to the IRS the amount of COLI (corporate owned life insurance) they hold.

blackbeary February 5th, 2012 at 3:17 pm

The malappropriation of pensions is an example of the general corporate principle of privatizing the commons while hiding behind the facade of a legal abstraction.

Ellen Schultz February 5th, 2012 at 3:18 pm
In response to Bruce H. Vail @ 85

A lot of the practices were made public because of tax-court cases (Wal-Mart, Winn Dixie) etc. Nestle, Dow Chemical, Procter& Gamble, Disney…these are just some of the companies that insured thousands of workers.

DWBartoo February 5th, 2012 at 3:19 pm
In response to Scarecrow @ 87

I think you have nailed the existing reality, Scarecrow, very precisely, however, as I suggest, @ 88, it is the congressional AND the other two branches of the federal government who KNOW and have PERMITTED this theft, this criminal “taking” to go on … and likely shall continue to allow it to go on.

DW

DWBartoo February 5th, 2012 at 3:20 pm
In response to blackbeary @ 90

Well and truly said, blackbeary.

DW

Starbuck February 5th, 2012 at 3:21 pm

Ellen, I was in the library yesterday and there is your book. No time to take it up before this post, and I seldom comment before reading. But I just want to say thank you for writing this and coming here to discuss it.

Dean Baker February 5th, 2012 at 3:21 pm
In response to DWBartoo @ 88

What is legal is determined in part by the regulators. If the regulators took a strong stand, then the companies would have to litigate to get away with their scams.
Imagine that you had home insurance and you wanted to open a restaurant and pay the same insurance. Presumably you would not be able to get away with this and keep the same rate. However if your insurance agent was corrupt or incompetent then you might get away with it. This is the situation we have with the PBGC.

Ellen Schultz February 5th, 2012 at 3:24 pm
In response to Scarecrow @ 87

Companies are allowed to reduce future benefits, but can’t take awa a pension benefit that has already been earned.

But many employers found a way around that: when they adopted cash-balance plans, they essentially froze the pensions of the older workers for a period of time. It was as if they were saying “we’ve been paying you too much, so you’re not going to get a paycheck until we’ve recouped the overpayment.”

This was outlawed prospectively in 2006. But employers who did this before 2006, like AT&T, where an older worker might work 13 years without seeing his pension increase, were home free.

DWBartoo February 5th, 2012 at 3:24 pm
In response to Dean Baker @ 95

Who has the ultimate responsibility for the behavior of the PBGC, Dean, Constitutionally?

DW

Ellen Schultz February 5th, 2012 at 3:26 pm
In response to Starbuck @ 94

Thanks, Starbuck. Hopefully, you’ve been spared some of the shenanigans I write about in the book.

Bruce H. Vail February 5th, 2012 at 3:27 pm
In response to Ellen Schultz @ 89

Is the disclosure to IRS public information?

Scarecrow February 5th, 2012 at 3:28 pm

Ellen — I appreciated your comment about why Wall Street Journal reporters exist — to contradict the paper’s editorial page — so I’m wondering how you think you’re doing with former colleagues and other media that attempt to cover this topic. Do you feel you’re making progress? Any converts? Any mea culpas from those who got duped in the past?

Ellen Schultz February 5th, 2012 at 3:29 pm
In response to Bruce H. Vail @ 99

No, but in theory once could FOIA the data quantitatively.

Dean Baker February 5th, 2012 at 3:29 pm

The director is appointed by the president and approved by the Senate, although the current director was a recess appointee. Congress is responsible for oversight and could hold the PBGC’s feet to the fire, but there is no appetite for that.

realitychecker February 5th, 2012 at 3:30 pm
In response to Ellen Schultz @ 77

“they’re outgunned and understaffed.” You left out “under-motivated.”

Ellen Schultz February 5th, 2012 at 3:33 pm
In response to Scarecrow @ 100

One reporter at a Midwest newspaper told me he felt chagrined at having been duped by the consulting firms; I’m not sure what impact the book has had on the print media in general.

BevW February 5th, 2012 at 3:34 pm

Ellen/Dean, Do state regulators have more “motivation” or resources to investigate and prosecute pension fraud?

Teddy Partridge February 5th, 2012 at 3:35 pm
In response to Ellen Schultz @ 71

That’s an excellent idea, thank you.

realitychecker February 5th, 2012 at 3:35 pm
In response to DWBartoo @ 83

DW, you innocent child, it’s all one great big “nobody could have anticipated . . .” (We shoulda bronzed Condoleeza whilst we had her.)

Bruce H. Vail February 5th, 2012 at 3:36 pm
In response to Ellen Schultz @ 101

But what would be point of that? You still couldn’t identify the buyers of Dead Peasants Insurance or the extent to which they benefit from it financially?

Anyway, did you see my question up top about Gotbaum?

Starbuck February 5th, 2012 at 3:37 pm
In response to Ellen Schultz @ 98

Thankfully, yes, but that is because I took the funds and help start a business.

The company I left is still going strong, one of the major instrumentation firms to have arisen from WWII. My colleagues still there or retired, had no negative things to say about the trust. In fact, a close relative is now employed there and he has no complaints.

It seems that many of the better electronics firms seem to have avoided being caught up. Not all of them, of course.

Ellen Schultz February 5th, 2012 at 3:37 pm

Yes and no. In general, I’ve found that the career IRS and Treasury employees have tried doggedly for two decades to rein in these practices, but their efforts have been largely cancelled out by the appointees at the top, who in many cases come from the employer side (law firms, benefits consulting firms), and go back to that sector when their stint in government is over.

(Ironic PS: they then not only collect huge pension packages from their private firms, but also collect a government pension).

DWBartoo February 5th, 2012 at 3:38 pm
In response to Dean Baker @ 102

Congress seems to have little appetite for anything, save itself and its member’s well-being, these days, Dean … I am merely suggesting that all three branches have made plain their prejudice in favor of the corporate class … Obama drags his feet, Congress twiddles its thumbs, and the Supremes sing praises to money-talk and corporate personhood.

While all three branches seem to be too well-satisfied and well-fed, to note that there is a hunger in the land … for justice, for a genuinely “level” playing-field, and for actual democracy.

DW

Ellen Schultz February 5th, 2012 at 3:39 pm
In response to BevW @ 105

Pensions and benefits fall under federal pension law (Erisa), which pre-empts all state laws.

Dean Baker February 5th, 2012 at 3:40 pm
In response to BevW @ 105

It varies. You can have ambitious figures (e.g. Eric Schneiderman) who actually are there to get the big boys and aren’t afraid to stick their necks out. These are the exception in public life, but they exist. Unfortunately, most of the issues have to deal with federal law, not state law.

realitychecker February 5th, 2012 at 3:41 pm
In response to Dean Baker @ 95

That’s why it is always so comforting to have deliberately “captive” regulators in place.

DWBartoo February 5th, 2012 at 3:41 pm
In response to Bruce H. Vail @ 108

But, but, I am not claiming to be “innocent”, rc, merely concerned that we are all being taken for a ride and fitted with cement overshoes as we approach a dead-end bridge over very troubled waters …

I do hear loud protestations of innocence, though, distantly rising from on high …

On edit, sorry Bruce, this mindless comment was meant for reality checker @ 107.

;~DW

Ellen Schultz February 5th, 2012 at 3:41 pm
In response to Bruce H. Vail @ 108

what number is the question?

Ellen Schultz February 5th, 2012 at 3:46 pm
In response to Bruce H. Vail @ 14

The PBGC has pushed back in the past — ex., when Harry & David filed for bankruptcy last year, the PBGC tried to stop it from dumping its plan, and argued that the company, owned by private equity firm Wasserstein, was inflating the liabilities in order to convince the bankruptcy court to allow it to ditch he plan. But the PBGC has less power than the bankruptcy judge.

realitychecker February 5th, 2012 at 3:48 pm
In response to Ellen Schultz @ 110

Yes, it was the “under-motivated” ones at the top that I was referring to, since they generally get their agencies to run at their preferred intensity level. Let’s just say it: Crooked cops are routinely put in charge of policing their criminal buddies, so the results are very predictable. Everybody gets rewarded but the public, which deserves to get screwed because it is the public. :-(

Ellen Schultz February 5th, 2012 at 3:48 pm
In response to Starbuck @ 109

Glad to hear it. There are some good players out there. But if management changes, all bets are off…

Bruce H. Vail February 5th, 2012 at 3:49 pm
In response to Ellen Schultz @ 117

Interesting.

Wasserstein also knee-deep in the Hostess Brands bankruptcy, which also has every appearance of being a pension rip-off.

BevW February 5th, 2012 at 3:50 pm

What do you project the Pension Plans to look like in 5-10 years? Will there be pension plans?

DWBartoo February 5th, 2012 at 3:52 pm
In response to Ellen Schultz @ 117

Ah, Ellen, a toothless, tightly-leashed barking dog, will, eventually, lapse into silence, especially if it has often made itself a wee bit hoarse … to no avail.

DW

BevW February 5th, 2012 at 3:52 pm

As we come to the end of this great Book Salon discussion,

Ellen, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book and the theft of pension.

Dean, Thank you very much for Hosting this great Book Salon.

Everyone, if you would like more information:

Ellen’s website and book (Retirement Heist)

Dean’s website (CEPR) and books

Thanks all, Have a great weekend.

If you want to contact the FDL Book Salon: FiredoglakeBookSalon@gmail.com

realitychecker February 5th, 2012 at 3:53 pm
In response to DWBartoo @ 115

Don’t worry your pretty little head. This is America. Truth and justice for all. In time for the commercial.

Dean Baker February 5th, 2012 at 3:53 pm
In response to BevW @ 121

My guess is very few in the private sector. I hope that we can save the public sector plans. Back in the days when I was in grad school, pensions were pretty uncontroversial. The argument was that the party which is better able to bear risk (the employer) does so and both sides benefit. For some reason, this simple logic seems to be lost on people today.

bigbrother February 5th, 2012 at 3:54 pm
In response to Ellen Schultz @ 119

Percentage of losses as part of total assests for retirement and dollar estimate in trillions? Or have you estimated this already here? Thank you I hope you and Mrs. Elizabeth Warren are acquainted.

DWBartoo February 5th, 2012 at 3:54 pm

This has been a most-fascinating and instructive Book Salon, Ellen and Dean, and, in all seriousness, very much appreciated.

Thank you, both, very much, for spending time with us.

DW

bigbrother February 5th, 2012 at 3:56 pm
In response to bigbrother @ 126

Does anyone have the numbers?

DWBartoo February 5th, 2012 at 3:56 pm
In response to BevW @ 123

Thank you, Bev, as always, excellent, stellar choices, and most pleasant company, you arrange for these Book Salons.

It is VERY much appreciated.

DW

PeasantParty February 5th, 2012 at 3:57 pm

Ellen,

Thank you so much. I look forward to reading the book and learning from all your work and research.

Free Market My Arse!

I hope to find out how the new and improved Global Corporations are working these things out as well.

Ellen Schultz February 5th, 2012 at 3:58 pm
In response to BevW @ 121

There are 44 million people covered by private employer pension plans (active and retired). My guess as to what will happen:

1) Some companies will keep their pension plans, because they realize that it’s cheaper to provide some of compensation in the form of a pension, than it is with current wages. This will probably be more common with union plans.

2) Companies with frozen plans will wait until interest rates rise, which will cause the plans to be better funded. They’ll then terminate the plans and extract the surplus, or keep the frozen plan in place and use the excess assets for a variety of corproate purposes, not least of which is using the investment returns to offset the cost unfunded executive pensions.

3) Unhealthy companies with frozen or unfrozen plans will stop contributing to the plans, and dump them in bankruptcy.

) Public employee pensions will for the most part survive the current assault, though future benefits will be reduced.

PeasantParty February 5th, 2012 at 3:59 pm
In response to DWBartoo @ 129

Definitely!

We seldom give Bev the credit she deserves. Her choices are so timely as to be extra sensory.

Bev! Excellent Choices this week and last, well… ALWAYS!

bigbrother February 5th, 2012 at 4:00 pm

Ca prison workers retire on 85% of pay. So many of these funds are obligated to pay out for 20 years or more that must be many trillions. As the corporate execs look around for a pot of money to steal there is retirement plus many other pots.

bigbrother February 5th, 2012 at 4:04 pm

Thank you Bev and Ellen. Graft and greed rule.

realitychecker February 5th, 2012 at 4:13 pm

Thank you Bev, Ellen, and Dean. Very serious business.

Teddy Partridge February 5th, 2012 at 4:41 pm

Thanks to one and all.

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