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

Ellen Schultz's 'Retirement Heist' is both enlightening and aggravating. 'Retirement Heist' is the outgrowth of years of digging through SEC and IRS filings, as well as numerous interviews. The book tells how companies have turned pension plans into piggy banks, tax shelters, and profit centers through exploiting loopholes, ambiguous regulations, and new accounting rules. In doing so they have also exaggerated retiree burdens to lobby for government handouts, secretly cut employee pensions while boosting executive pensions, and mislead employees and shareholders. New flexibility in accounting rules have also turned retiree plans into earnings-management tools, helping to boost stock prices and, thereby, executive pay.

The story begins in 1999 after the stock-market run-up in the 1980s which left corporations with over $250 billion in excess pension fund assets, aided also by years of downsizing and 1990 and 1974 laws limiting raids on fund surpluses and requiring adequate funding. Many of the corporations hadn't contributed to their pensions in over ten years, yet had enough assets to cover all current/future retirees to age 100. Their lobbying then allowed new uses for those monies.

Bell Atlantic then used $3 billion to finance early-retirement benefits for 25,000 managers being let go, and Verizon (its eventual successor) continued the practice - the result, combined with a relatively small market decline, was the surplus fell from $24 billion in 2000 to $1.7 billion in early 2005. It then froze the pensions of its 50,000 management employees, withdrew another $5 billion, and by early 2011, when the market was higher than in 2000, the plan had a $3.4 billion deficit. Delphi, Delta, Ford, G.M., and United acted similarly; most then passed their underfunded plans off to the government's PBGC, which in turn further cut many of the employees' pensions per law.

Companies also tapped pension plans to pay retiree health benefits, previously covered on a pay-as-you-go basis. DePont was the first, folowed by Allegheny Technologies, Florida Power & Light, Prudential, U.S. Steel, and others. Again, two major firms - Allegheny Technologies and U.S. Steel, then dumped their diminished pension funds on the PBGC.

M&A activity, as well as spin-offs have enabled companies to convert surplus pension assets to cash. For example, G.E. sold an aerospace unit to Martin Marietta in 1993, along with its 30,000 employees and $1.2 billion in pension assets - about $531 million overfunded. By getting a better price because of the surplus it was able to pocket the $500 million. After doing this dozens of times, its $24 billion 1991 surplus became a shortage of $6 billion in early 2011 - despite a substantial interim market rise. DOD then sued because it had funded the G.E. workers' retirement funds and was supposed to get a refund if the unit closed (Martin Marietta subsequently closed it, and DOD labeled the transaction a 'sham'). Courts have ruled that even surplus employee contributions can be disposed of this way.

Transferring executive retirement benefit costs to employee pension funds via loopholes is another common technique. Intel saved $200 million doing this; Johnson Controls, Parker Hannifin, PMI Group, and others did so; again, some are now underfunded.

Terminating pension plans via other loopholes that involve setting up a replacement 401(k) has been used to help pay corporate creditors instead of full pensions. Think Enron, Occidental Petroleum, Wards, etc.

AT&T, A&P, Boeing, BofA, Cigna, Dana, IBM, Georgia-Pacific, Hershey, and many others have frozen benefits earned under existing plans, and replaced them with new, reduced plans going forward. Cigna was caught lying, telling employees that pensions were being 'enhanced' and not saving the firm any money - the case is still in court. IBM similarly tried to cover up the impact of its changes - dogged employees, however, proved their case and forced a partial reversal. Shultz also points out that most short-changed employees opting to take a lump-sum payout.

In 1998, over $1 billion of G.E.'s $13.8 billion in pretax profit came from pension plan manipulations (eg. changed assumptions about earnings, reducing pension and health care benefits). Executive pensions at G.E. total $6 billion, hidden in the pensions for regular workers (15% of the total). Utilities have been caught trying to justify rate increases by making unjustified assumptions about the rate of health care cost increases, etc.

Companies buy life insurance on workers because the money grows tax-free, and the benefit payout goes to the company tax-free.

Medicare's prescription drug benefit originally allowed companies to receive a subsidy of 28% of whatever was paid for each retiree (up to $1,330/year/retiree) - even if the retiree paid the entire amount. Many companies also stopped paying the benefit while collecting this subsidy. Regardless, accounting rules required booking the anticipated future subsidies as an asset, and when this practice was stopped (effective 2013) in ObamaCare, they booked large charges to reduce those assets - AT&T - $1 billion, Caterpillar - $240 million, Deere - $220 million, and Verizon - $970 million. Fox News, etc. then alleged these were 'new' costs, which of course they were not.

Bottom-Line: Politicians and CEOs claim entitlement spending in America is out of control and dragging down our economy. 'Retirement Heist' debunks that allegation; the near disappearance of defined benefit private-sector pension plans didn't HAVE to occur. Readers will be amazed at how important financial engineering of pension and health-care benefit funds are to corporate profits, and the gaming that goes on, at employee expense.

Excellent, excellent book! I highly recommend this book to anyone who is part of a pension plan or collects a pension.

I could not put this book down and read it in two evenings. I then ordered three copies to give to coworkers.

This book explains in plain English how companies manipulate pension plans for their profit to the detriment of the plan participants and retired pensioners. Truly an eye opener with real life examples from Caterpillar, ATT, Verizon, US Steel, and on and on. The author even lists some of the court cases brought by pensioners for those who want to dig a little deeper.

Definitely worth a read.

First, read RETIREMENT HEIST to understand how executives in corporations and their hired enablers and strategists, benefits consulting firms, use accounting tricks, legal loopholes, deception, and outright lying to rob people -- maybe you -- of their pensions.

Second, read it to understand how these same executives have and continue to transfer wealth, if you can call employee nest eggs that, from their workers to themselves to fund their ludicrously inflated pensions.

Third, read it to understand how executives are burdening their companies with huge unfunded deferred compensation packages that may prove costly to employees and investors in the future. And given recent trends, let's include all taxpayers.

Fourth, read it to understand the new meaning of financial management and how executives use financial maneuvers to deceive not just their employees and government monitors but also investment analysts and investors.

For an overview of the book, scroll up to the book description and also read Lloyd Eskildson's excellent review. And don't immediately assume Schultz is talking about obviously shady operators. She's talking about and citing the shenanigans of executives in corporations widely held by investors and leaders in their business sectors. Among those covered are AT&T, Bank of America, American Greetings, Cigna, Delta Airlines, IBM, the National Football League, and many more, perhaps your employer or stock investment among them.

Schultz writes clearly about even the most complex tactics and supplies plenty of examples to illustrate her points. After finishing, you will understand the games executives play with retirement and healthcare benefits, as well as their own compensation packages.

You'll also find yourself extrapolating to other issues. For instance, under ERISA (Employee Retirement Income Security Act), while aggrieved employees or retirees may sue over pension disputes, they may not collect punitive or pain and suffering damages, just unpaid pension funds if they win. Sounds fair enough, except corporations typically drag these cases on for years until plaintiffs give up, exhaust their meager resources, or die. Bringing suit isn't easy, though, because without a payoff of punitive and pain and suffering damages, finding representation is challenging. As you read the section on ERISA and thwarted suitor efforts, consider the effect tort reform might have in other areas of civil law. We love to malign tort attorneys -- I'm not one, by the way -- but they can effectively police bad behavior; and it may not be in our best interest to cap judgments.

Finally, I might add that the information in the book reflects an unsettling development in business; in particular, the way executives manage. Perhaps I'm a bit idealistic, however, as I see it, top management manages -- or used to manage -- for three broad constituencies: for the well being and prosperity of the company, to provide their markets with useful products and services, and for the general good of society as a whole. Of course, they weren't always successful but, for the most part, they appeared to make an effort. Not so today. As RETIREMENT HEIST and other recent books illustrate, since perhaps the 1980s, top management has shifted the focus to themselves, managing for their own personal gain, often as Schultz and others show, to the determent of their companies, employees, and the economy at large. It's a sad state of affairs that came to a disastrous head in 2008, and the situation isn't at all better today. You have to wonder how these corporate leaders face their own families after a day at the office.