The pensions heist

SOYMB continues its investigation into the Great Pensions Theft.

Over the last decade, we've witnessed the wholesale gutting of pension and retiree healthcare .... Pensions have been decimated for the people who seem to have the most secure retirement, and without Social Security a lot of these people would be destitute. In many cases, that's all they have. Ellen E. Schultz, a reporter for the Wall Street Journal, reveals in her new book, "Retirement Heist," it wasn't the dire economy that led these companies to plunder their own employees' earnings, it was greed. Over the last decade, some of the biggest companies -- including Bank of America, IBM, General Motors, GE and even the NFL -- found loopholes, abused ambiguous regulations and used litigation to turn their employees' hard-earned retirement funds into profits, and in some cases, executive compensation.

Pensions are not gratuities, something the company decided they would give you if they felt like it. This was something that was earned, that was deferred. The pattern after the Second World War was that as companies were growing quickly, they didn't have a lot of cash. So the deal was, they gave workers less pay then in exchange for pay later, and they called it a pension. If you worked for x number of years, you'd get your pay back. Same thing with healthcare benefits.

How did you first discover this "retirement heist" was happening?

In the late '90s I noticed that many companies, including a lot of the largest companies in the country, were hiring experts to change their pension plans. They all claimed they were doing it to make themselves more modern and better for the mobile workforce, but it struck me as unlikely that a lot of companies would be doing something that was apparently costing them money just to make employees happy. I ultimately figured out that they had found a way to use the accounting rules to profit from cutting benefits.

Think of pensions as a debt. If a company can reverse a debt, it can record it as income. And that income is the same as if they got it from selling trucks or whatever it is the company sells. There were billions in promises to retirees for pensions and healthcare and death benefits and life insurance, and the companies figured out that if they cut or eliminated them altogether then they could get those billions in profit -- and even use them for executive compensation. A striking example was Lucent, which inherited about 100,000 retirees when it was spun off from AT&T. From the beginning, Lucent kept saying, "We are crippled by these retirees," but the truth is, they also received more than enough actual money from AT&T to pay every dime of benefits for all the current and future retirees. Bit by bit, they cannibalized these benefits. They eliminated a death benefit, which is a very simple thing that says, if you work for us for 25 or 30 years, and you die, your widow will get $50,000 dollars or whatever per year. Lucent said they couldn't afford that. So they took it away and saved $400 million that had been set aside physically in the pension plan for these folks. At the same time, they awarded more than $400 million in bonuses to executives.

The retirees didn't understand this was being done to them. They just assumed, "Oh well, this company is affected like everyone else by the economy." They didn't see the role the companies played [in deceiving their employees]. The federal courts found Cigna documents that made it clear that the HR executives were discussing how, if the cutting of employees' benefits was handled right, there wouldn't be an employee backlash because the people wouldn't understand what was happening. And it's a pattern that has existed at a number of other companies. It may seem odd to you that a person wouldn't know their pension is being cut, from, for example, $20,000 a year to $15,000 or $10,000. But companies have various ways of masking it. One way is to pay people a lump sum when they leave, saying, "Here's a lump sum so you don't need to wait until you're 65 to get a payment." Almost everyone who was attracted to that assumed it was the equivalent amount to a pension because they didn't know about the time value of money and discount rates and so forth.

We're moving towards a more mobile workforce where people don't stay around for life at their jobs. But the companies were taking aim at the older people who had already been there for a whole career and were not mobile and didn't want to leave their jobs because they wanted to keep the money coming in and to pay their bills and build up their pension. The purpose of changing the plan wasn't to make it better for a mobile workforce. It was to take away what the nonmobile workforce had already built up. Take the retirees of GenCorp. They had been promised their retiree health coverage in writing, but employers put little clauses into the plan documents that said, We reserve the right to change the benefits. The participants didn't know that clause was in there and assumed when their employers said, "If you take early retirement, we promise we'll continue your health coverage until you're 65 and you can qualify for Medicare." On that kind of promise people said, "OK, that sounds pretty good." After a few years, the companies turned around and said, "You know what, we can't afford that." When the retirees challenged them in court, the employers pointed to those little clues in small print deep in the document. So even when they had these benefits promised to them in writing, they legally lost. Union employees had physical legal contracts that had been collectively bargained that said, "We promise you lifetime coverage." So the employers claimed, "We didn't mean your lifetime, we meant the life of the contract," and it worked.

Do you think part of the problem is also we have a cultural disdain for the elderly in this culture?

Yes, they were human resources. They were something that could be converted into income...

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