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The Author Speaks

Ellen Schultz Reveals How Companies Profit From Employee Pensions

'Retirement Heist' is eye-opening for American workers

Q. There seem to be even fewer protections for retiree health benefits.

A. Starting in the 1970s and '80s, companies had made very clear promises to people, both salaried and [union]. A series of court cases, in the 1980s and '90s, came to the conclusion that this was not a legally protected benefit.

Q. How have executive pensions and deferred-compensation plans contributed to the overall problem?

A. As executive pay became tied to stock performance, executives who cut pensions and retiree health care were actually doing themselves a favor. As they were cutting regular pensions, they were boosting executive pensions. Often what appeared to be an increase in pension expense was because of the executives, not the regular folks.

Q. What is "dead peasants insurance"?

A. The way that companies have found to create a pension plan [for executives] with tax breaks is by buying large amounts of life insurance on the workforce. A policy is basically a giant tax-sheltered investment pool. It's like an IRA, where you put money into it and it grows tax-deferred. And you would get the death benefit tax-free. Essentially, it was a tax dodge.

Q. How did families find out?

A. Usually by accident. An insurance claims adjuster would mistakenly contact the family instead of the company.

Q. What was the reaction?

A. Horrified. In many cases, the person who died didn't even have health coverage. The family would be left with medical bills, debts, and the company would get millions of dollars.

Q. Has this practice stopped?

A. It has not stopped. The companies stopped buying very broad-based coverage on even the lowest part-time person; they began to limit it to more manager-level people. That doesn’t mean they got rid of already-purchased coverage on their low-level folks.

Q. You tell stories of people who successfully pushed back against companies.

A. One was a Motorola retiree who had a long, successful career as a technical troubleshooter. When he retired and noted that his pension was being miscalculated, by about $100 a month, he tried to get that corrected, and for five years at least they kept putting him off. A court did find that Motorola had miscalculated his pension — and the pensions of several hundred other people. So he not only got his payout — he got it for hundreds of other retirees.

Next: 401(k)s replacing defined-benefit plans. >>

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