Despite the rules protecting pension funds, U.S. companies siphoned billions of dollars in assets from their pension plans. Many, like Verizon, used the assets to finance downsizings, offering departing employees additional pension payouts in lieu of cash severance. Others, like GE, sold pension surpluses in restructuring deals, indirectly converting pension assets into cash.
See also: Interview with Ellen E. Schultz.
To replenish the surplus assets in their pension piggy banks, companies cut benefits. Initially, employees didn't question why companies with multibillion-dollar pension surpluses were cutting pensions that weren't costing them anything, because no one noticed their pensions were being cut. Employers used actuarial sleight of hand to disguise the cuts, typically by changing the traditional pensions to seemingly simple account-style plans.
Cutting benefits provided a secondary windfall: It boosted earnings, thanks to new accounting rules that required employers to put their pension obligations on their books. Cutting pensions reduced the obligations, which generated gains that are added to income. These accounting rules are the Rosetta Stone that explains why companies with massively overfunded pension plans went on a pension-cutting spree and began slashing retiree health benefits even when the costs were falling. By giving companies an incentive to reduce the liability on their books, the accounting rules turned retiree benefit plans into cookie jars of potential earnings enhancements and provided employers with the means to convert the trillion dollars in pensions and retiree benefits into an immediate, dollar-for-dollar benefit for the company.
With perfectly legal loopholes that enabled companies to tap pension plans like piggy banks, and accounting rules that rewarded employers for cutting benefits, retiree benefits plans soon morphed into profit centers, and populations of retirees essentially became portfolios of assets and debts, which passed from company to company in swirls of mergers, spin-offs, and acquisitions. And with each of these restructuring deals, the subsequent owner aimed to squeeze a profit from the portfolio, always at the expense of the retirees.
Also of interest: Taxes are no burden for GE. >>
Excerpted from Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers by Ellen E. Schultz by arrangement with Portfolio, a member of Penguin Group (USA) Inc., Copyright © Ellen E. Schultz, 2011.