Pension Heist

Book Review

Pension Heist by Ellen Schultz

The book Pension Heist by Wall Street Journal reporter Ellen Schultz was written about how corporations and hedge funds have raided the pensions of workers at a time when the state was coming hard to cut the teachers' pensions.

The year was 2011 - the apex of education corporate reform and Common Core and Race to the Top. All the billionaire funded non-profit groups like TeachPlus and Educators in Excellence in the name of helping were telling teachers they had to give up their defined benefit pensions like our brothers and sisters working in corporations.

What Schultz tells us is that the money corporations stole from the workers pensions funds was diverted to pay the pension and health benefits to the CEOs. That is why this country today is looking so gross with multi-billionaires like Amazon Jeff Bezos worth $200 billion and the federal minimum wage is still $7.25. 

It's sick and unsustainable!

Corporate worker pensions were once well-funded like city and state worker pension funds, even earning a surplus. Corporations saw they could take this money, being deceptive, and use it to spend on themselves - increasing bloated executive salaries, or in the Chicago teachers case, taking the money for teachers' pensions and diverting it to privatization schemes like charter schools and more testing.

It's ironic, and sad, to hear about an IBM worker who was a true blooded Republican and Vietnam War vet, who once he saw his pension was being raided wanted to join a union. 

This book is a cautionary tale because the Chicago Teachers's Pension Fund is funded at less than 50 percent, whereas more than 15 years ago it was funded almost 90 percent. 

Political hacks like Mike Madigan tried to cut our pension benefits on behalf of his corporate sponsors, but the Illinois Constitution prevented this. It says politicians cannot do anything to harm the pensions of state workers.

However, that is also what the federal law says, you cannot harm the pensions of workers.

So how did the corporations destroy their workers' pensions?

They hired consultants to fool people. You send a letter to your employees telling them you are pleased to announce that you will significantly enhance the pension program and make the retirement program "highly competitive," - which means the company froze the workers pensions without them knowing about it. You don't provide information. And if someone asks about it, and wants answers when they figure out they're getting screwed, you fire them! Easy cheesy when there's no union!

The funny story was Deloitte & Touche, a giant accounting firm, that tried to pass off a cash-balance plan that would lower their workers' pensions; however, their workers are financial experts who weren't fooled, and they raised a stink. The company had to back off, and eventually grandfathered the older workers. Something the state and CPS want to do as well!

If you can't lower your retired employees pensions, then you make them pay for their health care costs. Suddenly, your pension shrinks paying for a subsidy that the company promised to pay when you retired.

"While federal law dictates that companies can't cut pensions that have already been earned, this is not the case for health plans. That is, unless the benefits were protected by a union contract (and sometimes not even then), companies could pull the plug on benefits that employees, including retirees, had already earned."

Author Ellen Schultz

Companies were able to declare bankruptcy and terminate their pension plans. Chapter 11 bankruptcy gives banks and creditors priority over employees and retirees and vendors. 

Another tactic is to fire hundreds of thousands of middle-aged workers just when their pensions are poised to spike. The way the city does this is to put more demands and stress on teachers, forcing them to retire early and thus lose out on a better pension if they could work longer.

Here's a funny actuary joke about the people hired to divert workers pensions to bloated CEO compensation packages. A Chief Financial Officer (CFO) is interviewing for a benefits consultant and asks the accountant what is 2 + 2, and he answers 4. But the actuary says, 'what do you want it to be?' And he gets the job. 

Actuaries have been used to help companies figure out how much to put into their pensions, but in the last 30 years or so they now help employers turn pension plans into profit centers. The law says you can't cut pensions, but you can slow their growth.

How good are these guys? One benefits consultant suggested the company establish an offshore company responsible for the retirees, but not accountable under U.S. law and have it go bankrupt and thus terminate the plans, while another one said to simply terminate the benefits, wait for the retirees to sue, and then drag out the litigation until the retirees gave up and died. The author documents several of these cases. 

One company got its workers to transfer their retirement to a new program called "Project Sunshine," saying if they switched their benefits would stay the same. 1500 employees switched and then the company on purpose went bust, and so did the retirees' medical coverage. The CEO toasted the collapse, saying he felt good unloading a loser (believe me there are no happy endings for these guys!).

Ellen Schultz the author must eat crow when she wrote, "the odds of winning a benefits case are about on par with the Chicago Cubs winning the World Series." Five years later in 2016 - Cubs Win! But workers and pensions?

How bad is it? Lucent was able to get a $230 million gain from taking their workers' pensions and in 2004 awarded their CEO Patricia Russo a $1.95 million bonus on top of her $1.2 million salary, $4.6 million in restricted stock, plus $4.8 million in options, and after only 2 years, her compensation was worth $44 million. Many of her workers on pensions can barely get by!

We've reversed Robin Hood here - companies and governments beholden to the capitalists rob from the poor to pay the rich!

It's very profitable to rob from the older workers. IBM gained $3 billion from cutting their retirees benefits, which one CEO earns a sweet $3.2 million a year pension. Aubrey McClendon, the CEO of Chesapeake Energy, the second largest natural gas provider in the U.S., has earned a compensation of $156 million in 3 years and is owed $120 million in pension benefits, while his employees have no pensions. By 2008 executives were receiving one-third of all pay at U.S. companies. 

"The most important contributor to higher profit margins over the past five years has been a decline in labor's share of national income," Goldman Sachs economists wrote.  

The book ends on a sickening note about how the NFL has screwed over the football players, including the best inducted into the Hall of Fame, from getting benefits for disabilities despite clear evidence that the players were disabled after playing this violent sport that turned them into invalids. Check out the story of Mike Webster. It made me want to puke!

"The real problem with pensions isn't 'volatility.' It's that the accounting rules enable employers to gamble with retirees' money and then shift the risk to them."

That is exactly what has happened to the Chicago Teachers Pension Fund and many other funds!

By the way, the 401(k) many workers have is a scam. It was never intended to be savings vehicle for the rank-and-file. Employers have taken advantage of loopholes in the discrimination rules to exclude millions of low-paid workers and make it hard to join the plan and build benefits. Many companies have continued to manage 401(k)s for the benefit of the highly paid. Also, the author notes that at some companies the percentage of the employers stock is dangerously high which would get a money manager at any regular fund fired! Enron was one example of how the 401(k) killed its employees.

There really is no solution here, and the author is a realist, so she doesn't offer a silly one. She just warns correctly that this country is headed back in time to before the 1930s when pensions were first written into corporate and government contracts due to major organizing and communist threats. Society will pay to support millions of elderly, formerly middle class Americans, if something doesn't change.