Filed Under:

'Retirement Heist': How Firms Trimmed Pensions

Play associated audio

As companies have been moving away from traditional pension plans, they have been shifting employees to new retirement plans, such as 401(k)s, that transfer the cost — and the risk — to workers.

Companies have claimed for years that old-style pensions were unsustainable. Author Ellen Schultz tells Morning Edition host Steve Inskeep that there's another explanation.

"The main narrative is that [companies] are struggling to pay both their pensions and these unexpectedly high health care costs for the retirees," Schultz says. "What isn't known is that companies were well-prepared for this phenomenon. The plans were in fact significantly overfunded. They had more than enough to pay every dime for every person currently employed and already retired."

Schultz investigated the changes in pension plans as a reporter for The Wall Street Journal and has written a book called Retirement Heist.

In the early 1990s, Schultz says, companies were looking for new ways to push out workers, especially older, more expensive ones. She says the expensive way would have been to pay severance, "but the cost-effective way was to instead promise them a bit more pension money in lieu of severance." In the end, "you've just laid off somebody who's expensive and it has cost you nothing."

Schultz cites this example of one well-known company whose pension fund has dropped significantly since the early 1990s. General Electric announced it was closing its pension plan to be more competitive. She says the company's financial filings show that GE has not put a cent into its pension plans since the mid-1980s. Over the years, GE, like most large companies, used assets in the plans to pay for other things.

Morning Edition reached out to several companies for this story, but none would talk in detail about changes to their pension plans.

Don Fuerst, a senior fellow at the American Academy of Actuaries, says companies can offer retirees the opportunity to take a lump sum distribution rather than a lifetime of pension income, which can be beneficial to the company but detrimental to the individual.

"But it's always a choice," he says.

David Certner, a policy director at the AARP, says that "corporations weren't always so transparent and clear about what they were doing."

Schultz says there was a massive transfer of wealth over the past two decades, from a multitude of retirees to a small number of executives. But while she calls her book Retirement Heist, she concedes that nothing that happened was illegal.

"When you have a properly funded plan, it doesn't matter how many retirees you have or how long they live," Schultz says. "It's not the fact that you have a lot of retirees; it's the fact that you have abused the pension plan."

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

NPR

Sonia Rykiel, Designer Known As The 'Queen Of Knitwear,' Dies

The famously red-headed Rykiel embodied the intellectual chic and feminism of Paris in the late 1960s. With vibrant stripes or simple black, her clothes hugged a woman's body.
NPR

The Aztecs Once Revered It. Will You Fall For Amaranth Too?

Hardier than corn, this ancient grain has a subtle, nutty flavor and is full of nutrients. But for most Americans, amaranth is still obscure. Researchers in Tennessee hope to change that.
NPR

In Stunning Reversal, Trump Suggests He'd 'Work With' Immigrants In U.S. Illegally

Donald Trump courted hard-liners on immigration in the primary campaign. But he signaled Wednesday night he'd be in favor of a path to legalization for some immigrants in the U.S. illegally.
WAMU 88.5

A Cyber-Psychologist Explains How Human Behavior Changes Online

Dr. Mary Aiken, a pioneering cyber-psychologist, work inspired the CBS television series "CSI: Cyber". She explains how going online changes our behavior in small and dramatic ways, and what that means for how we think about our relationship with technology.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.