Aces High Bulletin Board
General Forums => The O' Club => Topic started by: oboe on July 02, 2005, 10:22:28 AM
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CEOs fly high while Pensions crash and burn (http://moneycentral.msn.com/content/P119362.asp)
I keep hearing the phrase "underfunded pension obligations". In what sense are these pension liabilities actually "obligations"? If they are really obligations, is there a penalty for leaving them unfulfilled?
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You know I'm one of those that's usually against organized labor but this is one thing were they need to step up at. underfunding your employee pensions by 12 billion should be a criminal act. Passing it on to the gove (as I thaught I read) should be criminal as well. Why should American tax payers have to pay for Fords mistakes.
Pfizer (PFE, news, msgs) has a $2.98 billion pension plan shortfall, but $19.8 billion in cash.
As citizens we have to show proof of income/or lack of in order to apply for certain govt aid. Why don't these companys have the same rules.
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I agree with you completely Gunslinger. It should be criminal.
The really disturbing part of this is, it's not just struggling companies like airlines doing it. Even corporations like Exxon and ConocoPhillips enjoying profitable times are letting their employees pensions twist in the wind.
Organized labor is such a small piece of the pie I wonder how effective they could be though. Like you say every American taxpayer is going to get this kick in the groin when the bill comes due anyway. Its going to be all our problem soon.
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There are pension funding laws administered by the IRS.
But........ suprise, suprise.......... companies can get waivers from the IRS.
The alternate DRC calculation allows an employer in the airline and steel industries to elect to determine the DRC as 20% of the otherwise applicable amount (i.e., an 80% reduction).
And, FYI, the Unions can't do diddly about it since it's between the Government and the Company. The Union can negotiate the pension but they cannot make the company fund it in any certain way (usually; always exceptions). Generally, pensions have to be funded in accordance with pension laws.
So don't try to stick this one on the Unions.
Don't say "there oughta be a law" because there are laws.
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I'm sorry Toad I don't understand the quote - what does DRC stand for? There isn't enough there for me to understand what it's saying. (although I note the specific mention of airline and steel companies - but nothing about energy or drug companies also getting special treatment).
If there are laws, why are they not being enforced? Does it fall under the purvue of the apparently toothless Sarbanes-Oxley regulations?
Also note, I'm not sure all the companies in that list even have unions representing their workers. A union at Pzifer?
Interesting how Walmart is not on the list. I would guess they fully fund their pension obligations, huh?
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Should have linked the page. This is only scratching the surfact but it's an IRS page and I'm sure you could spend the day there if you chose.
http://www.irs.gov/retirement/article/0,,id=129503,00.html
For large pension plans, one part of the minimum funding requirement is based upon the difference between the plan's current liability and the value of the plan's assets. The current liability is a measure of the value of the benefits earned to date and is generally calculated using an interest rate based upon the interest rates on 30-year Treasury securities as specified by the Commissioner.[1] The contribution based upon this difference is called the deficit reduction contribution (because it makes up the deficit between the current liability and the value of the plan's assets). The deficit reduction contribution (DRC) resulted in relatively large increases in contributions for employers with large underfunded plans, many of whom had no funding requirements for the past few years.
Any wonder noone likes to talk about pension funding? They give ya a headache pretty quick, don't they?
The laws are enforced. Sorta/kinda. When companies get in trouble, they cry to the Congress/IRS for relief from their pension obligations. They say if we don't get relief, we go bankrupt and PBGC will have to pick up our pension liabilities. Since PBGC is essentially broke, Congress/IRS usually finds a way to grant relief. At whose expense does relief come? The worker first, the taxpayer eventually. Kewl how that works, huh? And, before you start, this has been the pattern through ALL administrations/Congresses. It's not party-dependent.
My brother: Eastern Airlines hire in 1972, stayed through bankruuptcy, absorbed by Trump, stayed through bankruptcy, absorbed by US Air, stayed through bankruptcy, retires in 4 days from US Air. His PBGC pension for 33 years and the rank of Captain? $1600/month, before taxes.
Borman, the guy that ruined EAL? Filthy rich, great pension.
Lorenzo, the guy that totally destroyed EAL? Filthy rich, great pension.
Trump? (At least he tried, treated the employees fairly) Filthy rich.
Wolfe and Gangwhal, the guys that ruined/destroyed US Air? Filthy rich, great pensions.
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Walmart's regular employees don't have a pension plan.
Theyh have only profit sharing plan and 401(k). The company contribution of 2% of annual income to each plan not guaranteed.
Most employees with 7 years service (100% vested) have only 1-2 Thousand in 401(k) and less than $9,000 in profit sharing.
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:mad:
I really don't see how we can last as a great country with abuses like that. Its almost as if business leaders and political leaders operate from the perspective of pure, short-term self interest.
Well, things may have always been that way, but it seems now they also are brazen in flaunting their responsibilities under the law. And of course the exponential increase in executive pay relative to everything else in the last decade or so makes it seem even more abusive.
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(http://www.faireconomy.org/images/1990-2003CEOPay.gif)
CEO Compensation: Business Week annual executive pay surveys. S&P 500 Index: Standard and Poors Corporation. Corporate Profits: Bureau of Economic Analysis, National Income and Disposition of Personal Income Data. Average Worker Pay: Bureau of Labor Statistics, "Average Weekly Earnings of Production Workers, Total Private Sector." Series ID: EEU00500004. Inflation: Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers.
A simply amazing climb there from 1995 to 2000 wasn't it? ;)
How do you like those "Walmart Pension" obligations?
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seems to me that corporate profits should be linked directly to CEO / Executive pay scale.
But I do agree that corporate America is so badly over paying CEO's today regardless of profits.
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Hmm, Toad you are amazing at digging up supporting material.
The Walmart remark was a nice fat slow pitch, and you knocked it out of the park. I figured they didn't offer pensions to their workers, but wasn't sure.
I agree Bodhi, CEOs seem extremely overpaid. But I'd like salary linked to more than just profits. A company can improve profits by underfunding its pension obligations, for example. And right now there doesn't seem to be any reason for them not to, even though its against the law.
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Originally posted by oboe
Hmm, Toad you are amazing at digging up supporting material.
One of my very few limited 133t mad skillzz seems to be knowing how to ask Google a question. ;)
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Originally posted by Toad
(http://www.faireconomy.org/images/1990-2003CEOPay.gif)
A simply amazing climb there from 1995 to 2000 wasn't it? ;)
How do you like those "Walmart Pension" obligations?
I'd like to pin it on Clinton somehow :D...but I would guess that the tech boom helped those CEO profits. (and "Creative Accounting" like Enron...)
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Actually I think there was some decision dating back to that time that freed corporations from having to expense stock options granted as executive compensation. So having a large portion of CEO pay in stock options during the market boom is probably the reason for that graph's shape.
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I totally agree Oboe, CEO salaries should be linked to profits, meeting the pension plan, as well as making sure all "obligations" are met from there on. Including no lay offs.
It's time for the rest of Amreica to send a message to all these modern day robber barons and that message is, "Enough is Enough, Earn your damn pay!"
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Anybody ever bother to do the math on whether reducing CEO salary would make even the tiniest dent in pension expenses?
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For Chuck Starcher, a mechanic at Delta airlines, the bad news came in a letter, estimating just how much the airline plans to cut his pension every month: right off the top, the company is slashing $1,100.
As CBS News Correspondent Wyatt Andrews reports, he's not happy, because Delta is cutting the pensions of workers while guaranteeing full pensions for top executives. A year and a half ago, Delta quietly committed $65 million for executive pensions, including one for CEO Leo Mullin. The benefit is called an executive trust; Starcher calls it a raid.
"Where's he getting the cash to put into that pension plan he's going to have guaranteed?" asks Starcher. "It's definitely coming from us."
http://www.cbsnews.com/stories/2003/07/17/eveningnews/ends/main563771.shtml
Would $65 million solve the pension crisis? No. Delta is ~$5 Billion underfunded.
Would the $65 million address the fairness issue? Yeah, it would help. It'd help the CEO image, that's for sure.
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Part of the problem stems from a generous corporate bankrupcy law, which I understand lets companies "restructuring" include everything from outstanding debt to labor contracts and pension obligations. Once those costs are "controlled", the comapany can emerge from bankrupcy -- which seems fair enough, but which then gives them a competitive advantage over companies which havent been released from previous obligations.
That in turn pushes the previously healthy companies into price wars that they cant win, and thence into.... bankrupcy.
And each time the cycle gets run, the giovernment becomes the payor of last resort for pensions, and once again the taxpayers at large foot the bill. WE pay for the competitive cycle, on April 15th instead of at the cash register.
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Pretty much the story of the airlines.
I remember when Delta/Eastern was a major competitive thing amongst the pilots on both sides. It was like the State football championship, hard fought with intent to win.
When EAL went bankrupt, while we were sorry for our fellow pilots...heck, my brother was one of them.... we felt we HAD won (although it was their poor management more than our competition that turned the tide) and that the fruits of victory would be ours.
No so. They lingered on and on, reviving and failing and the fare wars seriously damaged us. Damage that is now part of the cause of a failing Delta.
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My short answer to the obligation term question is yes it is the appropriate word.
The employees came on with a contractual "obligation" to work in a specific manner for specific number of hours per day / week / year / years for a given specified pension plan. The employer is "obligated" to provide a safe (as possible) environment, wage, benefits and funded pension as per the contract existing between the employer and employee.
Simply put, a contract has at it's core an obligation(s) on each party in the contract.
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Except that in a capitalist society the "capital" has no obligation, and the workers plenty.
Toad... if I were your brother I'd be grateful to the PBGC... you want to know what is monthly salary after eons of service and the retired rank of Captain would be without it? $0 monthly.
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The PBGC really isn't the point Urchin.
The point is what Mav said.
The employees came on with a contractual "obligation" to work in a specific manner for specific number of hours per day / week / year / years for a given specified pension plan.
In negotiations "trades" are made. For example, and this is an accurate one, EAL gave up competitive pay with other airlines for improvements in the pension plan. So for maybe 5 years they made less than other pilots at other airlines because they gave up "present pay" for better "retirement pay".
Now, had all "retirement" pay been vested in the employees own name, Lorenzo would not have been able to raid the pension funds and take that money. My brother would have been able to "take his pension with him" to Trump and then US Air.
And when US Air went bankrupt, he'd still have what he earned in his pension fund in his own name and the PBGC wouldn't be in it at all.