Ellen Schultz Reveals How Companies Profit From Employee Pensions

En español | It is hard to read Ellen E. Schultz's incendiary new book, Retirement Heist, without getting angry — especially if you've watched your own promised pension or retiree health benefits shrink or disappear.

See also: Excerpt from Retirement Heist

American companies have skimmed profits from employee pensions. — Photo by Xavier Bonghi/Getty Images

We've all heard complaints about spiraling health care costs, aging boomers and stressed corporate bottom lines — the justifications for freezing pensions, reducing health care benefits and moving from defined-benefit to defined-contribution plans like 401(k)s. Guiding us through complex thickets of law, finance and corporate skulduggery, Schultz, a Pulitzer Prize-winning reporter for the Wall Street Journal, illuminates the facts behind the rhetoric.

Retirement Heist reports that, far from crippling companies, many pension funds have helped enrich them. The greatest outlay, Schultz writes, has been for executive pensions and deferred-compensation packages that have spiraled in cost, at the expense of more modest retirement benefits for ordinary workers. More troubling still, she examines how companies have deceived workers about new accounting methods that cut pensions — and how companies skirted the law by secretly purchasing tax-advantaged life insurance policies on even low-level employees.

The AARP Bulletin talked to Schultz about her book.

Q. How did you first get interested in this subject?

A. About 12 years ago, companies were changing their pension plans. They claimed they were doing it to make the plans more modern. Not a single company acknowledged they were making these changes to reduce benefits and to save money.

Q. What surprised you the most?

A. Companies could benefit by cutting benefits even if benefits weren't costing them anything.

Q. How?

A. New accounting rules rewarded companies for cutting benefits, like erasing a debt that hasn't been paid out yet. And when they erased that debt, it generated income for the company. What actually shocked me the most was realizing how much money they could make from the plan when they would sell or buy a company — it's an indirect way of converting pension assets to cash.

Q. In the 1990s, many pension plans were overfunded. What happened to all those surpluses?

A. Companies siphoned billions of dollars from their pension plans. They commonly paid severance benefits from the pension plan, which saved cash. This was a way for executives to shed a large portion of their older workforce. They also used pension assets to pay for retirees' health benefits, which helped lure people into retirement.

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