Pension disparities draw flack

Swollen retirement packages of company executives contrast with eroding financial security of employees

By Kirstin Downey The Washington Post: April 20, 2003

As workers' pensions erode, employees, shareholders, unions and lawmakers are paying new attention to the many ways retirement packages for top executives outshine those of their workers.
Financially ailing Delta Air Lines, for instance, has asked employees to accept pay cuts and pension changes that many oppose. At the same time, it has set aside $25.5 million to create a special fund to guarantee executives' pensions if the airline should be forced to declare bankruptcy, according to corporate filings.
Sen. John McCain, R Ariz., called the Delta deal "insulting," coming at a time when the foremost recipient of Delta's largess, Chief Executive Leo Mullin, was seeking a multibillion dollar federal aid package for the industry.
At struggling American Airlines, its unions this past week threatened to rescind pay cut agreements after learning that top officials would get big bonuses if they stayed until 2005 and that a trust fund had been created to protect the executives' retirement pay if American files for bankruptcy. In response to the stir, American officials dropped the bonus plan, but said they would keep the pension agreements in place.
In recent years, Verizon's top executives boosted their pay and bonuses by tying them to the company's operating income, which was rising from high investment returns racked up by the company's $40 billion pension fund.
When Verizon stopped doling out cost of living pension adjustments to retirees, 90,000 of them organized a vote last year on a shareholder proposal that executives stop using the pension fund in their bonus computations. They proposed the measure again this year, and Verizon agreed last month to separate the executive compensation structure from the pension fund.
At Sears, five top executives receive pension credit for two years of service for each year on the job, according to company filings. That boosts their pensions compared with those of rank-and file workers. This proxy season, Sears faces a union backed proposal requiring it obtain shareholder approval for future "extraordinary pension benefits for senior executives" - including ones that give credit for years not worked. The retirement benefits gap between workers and executives is just part of the widening gap in compensation. The average chief executive's pay was 42 times that of the average hourly worker in 1980, according to Business Week. By 2000, CEO compensation was 1,531 times as much as the hourly worker's.
Pension issues are in the limelight because of the flurry of shareholder proposals at upcoming annual meetings. Also, there is proposed legislation on plans to revive conversions of traditional pension plans to plans that could bring lower benefits, especially for older workers.
"The workers of America deserve better pension law oversight and protection from their government," Janet Krueger, a 23 year IBM employee from Rochester, Minn., testified at a pension hearing. She said her prospective pension eroded sharply after IBM converted it to a "cash balance" plan in 1999. In a later interview, she complained about the generous pension IBM had constructed for Chief Executive Louis Gerstner during the same period.
Company officials defend Gerstner's package as a just reward for a job well done. "The IBM board of directors determined Mr. Gerstner's retirement package based on a number of factors, including the company's overall performance during his tenure," spokesman Bill Hughes said.
During Gerstner's nine year tenure, he said, total stockholder return increased 938 percent.
The vocal debate also comes at a time when fewer workers are covered by any kind of pension plan, and when those who are have seen their investments in supplemental plans, such as 401(k)s, hammered in the stock market.
Employment lawyer Lawrence Lorber, who testified for the U.S. Chamber of Commerce at a recent pension-conversion hearing, said the difference between executive and worker plans reflects "harsh business realities" caused by bad economic conditions, a weak stock market, an aging work force and intense competition. "It's an unfortunate confluence of the need to save money and the need to attract your savior," Lorber said.
The pension gap is an issue labor organizers believe will resound with workers. A Web site, www.paywatch.org, unveiled last week by the AFL CIO's investment office, highlights the discrepancies. "The difference in treatment is unbelievable," said Richard Trumka, secretary treasurer of the AFL CIO, many of whose member unions are major institutional shareholders through their pension funds.
Another tactic is pushing shareholder resolutions.
While inventive ways to embellish executive pension plans have proliferated, new studies show workers' plans are at risk.
A report by the Employment Benefits Research Institute, a nonprofit group, found that the number of workers covered by any kind of retirement plan has fallen in the past two years, from 60.4 percent of all adult, full time wage and salaried workers an all time high to 58 percent. Today's worker pensions are often different from the traditional annuity, or defined benefit plan, that offers a fixed monthly income upon retirement.
Now many pension plans are defined contribution plans, such as 401(k)s.
These kinds of pensions are problematic for John Rother, policy director at AARP He said 401(k)s "sound good, because you have choice, but suddenly, years later, people wake up to see that none of these changes were as good as the old style pensions would have been."

Information from The Associated Press was included in this report.