Pamela A. MacLean
RedwoodAge.com
Ten financially troubled US companies abandoned traditional pension plans for hundreds of thousands of employees at the same time the firms lavished just 40 senior executives with $350 million in compensation, a Congressional watchdog agency reported.
During the five years leading up to termination of company pension plans, the executives received salary, bonuses, stock, cars, private planes, severance packages and even company reimbursement of personal taxes, according to the nonpartisan Government Accountability Office.
The practices added to a growing burden on taxpayers. When company pension sponsors terminate plans during bankruptcy the plans may be taken over by the Pension Benefit Guaranty Corporation (PBGC), which insures the pensions of 44 million American workers and retirees. When companies terminate plans in bankruptcy it can deplete funds for PBGC, which makes reduced payments on plans. In 2009, the PBGC reported an estimated deficit of over $30 billion.
The review was sought by Rep. George Miller, a California Democrat and chair of the House Committee on Education and Labor. Miller said he is considering a law to freeze executive compensation if a firm's employee pension plan becomes sufficiently underfunded.
"Executive compensation and golden parachutes should be aligned to the fate of workers’ retirement plan," said Miller. "This will create an incentive for executives to fix workers’ pension plans before they go broke.”
Although the 10 individual firms cited weren't identified in the report they include two airlines, three steel firms, two textile companies, an insurer, an electronics company and manufacturing firm.
In the four largest cases, the firms abandoned pension obligations for 202,000 participants and left plans underfunded by roughly $11 billion.
By contrast, many pension holders saw their pensions significantly reduced when the plans were terminated. The GAO reported that one retired pilot saw his monthly pension payment cut by two-thirds.
Pleasure Trips
Miller pointed out that some executives received salaries in excess of $10
million in the years leading up to bankruptcy and families at one insurer
received apartments, personal trips on company airplanes and helicopters. They
made personal trips to China, Spain, Greece and Hawaii at company expense.
"It is fundamentally wrong that executives were able to line their pockets with millions of dollars from bonuses, stock options and free joyrides on corporate jets, while watching their workers’ retirement security slip into peril," said Miller.
One of the two airlines examined had $7.8 billion in underfunded pensions covering 122,556 employees. Three of its pension plans were terminated between 2004 and 2005.
But leading up to the termination, three top executives of the airline received $55.5 million in compensation, including nearly $15 million in salary and cash bonuses; they received more than $30 million in stock. The trio's personal retirement wasn't hurt. They received $7.5 million in retirement benefits. They also had unlimited travel rights and even had income taxes reimbursed by the company.
The GAO analyzed 1,246 underfunded pension plans that were terminated between 1999 and 2008 and selected publicly traded companies with large underfunded liabilities and a large number of employee participants.
In the last year PBGC has assumed responsibility for pensions of Delphi Corp., a major auto parts supplier, Circuit City Stores Inc., IndyMac Bank, Lehman Brothers Holdings Inc. and textile maker Dan River Inc.
