Stock market crashes have become fairly regular events since the economy collapsed in 2008 and 2009. Each time the market plunges, you can count on seeing a flurry of news reports looking at just how badly workplace 401(k) retirement portfolios have been hit. Rarely will you see a story asking why the market risk is born by individual workers; it's just an assumed sub-text that we all must rely on the market, because employers no longer can afford to provide traditional defined benefit pensions.
An award-winning investigative reporter for
"It wasn't an accident," Schultz says in an interview. "It is the result of actions companies took starting in the 1990s to profit from their plans. Employers took perfectly healthy plans with a quarter trillion dollars in aggregate surpluses, and they siphoned out the money through a variety of means."
The result has been a severe decline in private sector defined benefit (DB) coverage.
The percentage of Fortune 1000 (cq) companies with at least one frozen DB plan (where the sponsor company retains the plan but stops future accruals for all or some workers) more than quadrupled between 2004 and 2010.
The fate of DB plans is a critical retirement policy issue. Like
Schultz details an array of accounting tricks, tax incentives and other ways that companies manipulate plan benefits to serve corporate purposes other than providing retirement security to their workers. These include everything from financing restructuring plans and mergers to goosing bonuses and performance-based management compensation and funding lavish pensions for top executives. Pension assets, Schultz argues, also have been cannibalized to fund retiree health benefits -- which in turn also have been shrunk.
"Companies were taking money out of plans throughout the 1990s, and people didn't initially notice," Schultz says. "The plans looked healthy because the stock market was rising and there were surpluses. Companies started to secretly cut benefits and used a variety of means to reduce the rates of growth in benefits."
Schultz decided to write the book when she noticed a disconnect between what the companies she covered were saying to shareholders and their communications with beneficiaries about plan changes.
"I was dumbfounded that these massively overfunded plans were cutting benefits. The changes would be described as improvement or modernization to employees and retirees, but then the companies would tell shareholders that the changes would save money," he commented.
"They were referring to an accounting effect -- if you reduce future benefits by
Mergers have also had a devastating impact on DB plans, Schultz charges.
"When companies go through asset sales, they transfer populations of current workers and retirees. On paper, the retirees are a sort of portfolio of liabilities, but also the assets to pay benefits. But the buyers don't really have a connection to these retirees, and they don't care about them. So they hire consultants to audit the plans, and find ways to reduce the payout obligations and squeeze the plans for profit."
Schultz has leveled some very serious charges here that are backed up by impressive investigative reporting. Her book is recommended reading for anyone who cares about the future of retirement policy, and for anyone struggling to understand what's happened to their pensions.
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Personal Finance - Vanishing Pensions Another Case of Corporate Greed
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