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Workers' pensions decay as CEOs pile up benefits

By KIRSTIN DOWNEY

Washington Post

As workers' pensions are eroding, employees, shareholders, unions and legislators are focusing attention on the many ways top executives' retirement packages outshine those of their employees.

Financially ailing Delta Air Lines, for instance, has asked its workers to accept pay cuts and pension changes. At the same time it has set aside $25.5 million in cash to create a special fund to guarantee executives' pensions if the airline should be forced to declare bankruptcy, according to recent corporate filings.

Sen. John McCain, R-Ariz., recently called the Delta deal "insulting," coming at a time when the foremost recipient of Delta's largess, Chief Executive Leo Mullin, was approaching Washington seeking a multibillion-dollar federal aid package for the industry.

In recent years, Verizon Communications' top executives boosted their pay and bonuses by tying them to the company's operating income, which was boosted in turn by high investment returns racked up by the company's $40 billion pension fund.

When Verizon stopped doling out regular cost-of-living pension adjustments to retirees, 90,000 of them organized a vote last year on a shareholder proposal demanding that executives stop using the pension fund in their bonus computations. They proposed the measure again this year, and the company agreed last month to separate the executive compensation structure from the pension fund.

At Sears, Roebuck & Co., five top executives receive pension credit for two years of service for each year on the job, according to company filings, which boosts their pensions compared with those of rank-and-file workers. This proxy season, Sears is facing a union-backed proposal requiring the company to obtain shareholder approval of any future "extraordinary pension benefits for senior executives" -- including giving them credit for years they didn't work.

The gap between worker and executive retirement benefits is just part of the widening divergence in compensation between employees and their bosses.

The average chief executive's pay was 42 times that of the average hourly worker in 1980, according to Business Week. By 2000, the CEO compensation was 1,531 times as much as the hourly worker's.

Pension issues have received prominence recently because of the flurry of shareholder proposals at upcoming annual meetings. Also, hearings were held and legislation proposed recently on plans to revive conversions of traditional worker pension plans to plans that can mean cuts in benefits, especially for older workers.

"The workers of America deserve better pension-law oversight and protection from their government," Janet Krueger, a 23-year International Business Machines Corp. 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 pay and pension package as a just reward for managing the company well.

"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 in a written statement. During Gerstner's nine-year tenure, he said, total stockholder return increased 938 percent.

The vocal debate also comes at a time when fewer American 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 by the fall in stock prices over the past three years.

The pension gap is "the utmost in hypocrisy," said Karen Friedman, director of policy strategies at the Pension Rights Center, a nonprofit pension-advocacy center that counsels workers who have seen their plans cut back or terminated.

"Companies that are cutting back on pension benefits are giving huge benefit packages to CEOs at these companies. There's a basic element of unfairness," Friedman said.

Company spokesmen counter that rich pension plans have become a standard perk for top executives, and that companies that don't offer them won't attract the best people.

Jan Drummond, a spokeswoman for Sears, said accelerated pension vesting for top executives is a standard part of executive compensation packages among top-tier officers at very large companies.

Tom Donahue, a spokesman for Delta, said the $25.5 million special retirement fund for executives was approved by the company's board of directors in early 2002, in the wake of the Sept. 11, 2001, terrorist attacks, which wounded the airline industry.

"In an industry that was destabilized and uncertain, our officers were a rich target for executive recruiters," Donahue said. "It was considered a priority to maintain our executive management team."

Employment lawyer Lawrence Lorber, who testified for the U.S. Chamber of Commerce at the recent pension conversion hearings, said the difference between executive and worker pension plans reflects "harsh business realities" caused by bad economic conditions, a weak stock market, an aging work force and intense competition.

Basic pensions, which are IRS-qualified and tax-deductible but limit annual benefits to $160,000, "are not enough to keep executives comfortable in the style to which they had become accustomed," said Carol Bowie, director of governance research at the Investor Responsibility Research Center.

New and elaborate forms of enhanced executive pensions spread prolifically in the 1990s, she noted. "Once it starts, it spreads, because everybody wants one. It's sort of like having your cake and eating it too."

The pension gap is an issue labor organizers believe will resound with workers. A Web site 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, where many member unions are major institutional shareholders through their pension funds.

While inventive ways to embellish executive pension plans have proliferated, studies show that workers' plans are at increasing risk.

A report recently 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, dropping 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 that offered a fixed monthly income that workers could depend on receiving at retirement, called "defined benefit" plans. Now many pension plans are what are called defined-contribution plans, such as 401(k)s. They require that workers invest their own money, often but not always with an employer match. The benefit thus depends on how well the employee invests the money.

These kinds of pensions are problematic for John Rother, policy director at AARP, who called the shift "reflective of a change in philosophy, of shifting risk to the individual."

He said that 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."

Citing hard times, some companies recently have scaled back their matches to 401(k) accounts. Employers' matching contributions dropped from 3.3 percent of worker pay in 1999 to 2.5 percent in 2001, the most recent year for which numbers are available, said the Profit Sharing/401(k) Council of America, a benefits-industry group.

And in the past year, Charles Schwab Corp., Goodyear Tire & Rubber Co., Houston-based El Paso Corp. and Ford Motor Co. announced they were dropping their matching contributions, at least for the near future.

Too many Hispanic workers are dying on the job

By LINDA CHAVEZ-THOMPSON

Many Americans didn't know the vital role immigrants and native-born Hispanics play in our armed services until they saw the faces of those killed and injured in Iraq and heard the stories of citizenship being awarded posthumously.

It's high time immigrants' contributions made headlines. For too long, they've contributed to our nation's security and prosperity in the shadows. But what those news stories about the immigrant soldiers didn't show is the hardships in America to which those immigrants will return, and the dangers that both immigrant workers and native-born Hispanic workers face each and every day in their workplaces.

Immigrant workers -- Hispanics, Africans, Asians and others -- are killed and injured on the job in wildly disproportionate numbers. The number of foreign-born work fatalities has increased by a full third since 1992, to 849 deaths in 2000, while fatalities among all workers have declined, according to the federal government.

New statistics show that things are even worse for immigrant workers in Texas. The number of foreign-born work fatalities in Texas has risen by more than two-thirds over roughly the last decade. And it's not just immigrant workers who are suffering.

Native-born Hispanic workers too find themselves doing some of the most dangerous jobs in the nation -- working the oil rigs in Texas, the meat processing plants of the Midwest, and the burgeoning nonunion construction sites nationwide. The number of Hispanic workers killed on the job has increased by more than 50 percent nationwide since 1992. There were 190 Hispanics killed on the job in Texas in 2000, up from 136 in 1992.

It doesn't have to be this way. Today is Workers Memorial Day -- the day when workers and their communities join together around the world to pay tribute to those who died and were injured on the job last year, and to renew our commitment to make workplaces safe. Our nation should make a commitment today to end the scourge of workplace injury and death, and to especially turn around the tidal wave of growing deaths and injuries among immigrant and Hispanic workers. Employers should end their exploitation of workers, and the government should make sure they end it.

The Bush administration has thus far done little to reverse this trend -- and, in fact, has made decisions that will make it worse. While Secretary of Labor Elaine Chao has said the administration is committed to addressing the Hispanic death and injury rate, there's been no real action. In fact, the administration has cut vital training and education programs for Hispanic workers, killed an ergonomics regulation that would have helped many Hispanic workers who are routinely crippled in the nation's poultry factories and has refused to require employers to pay for protective gear for workers. Many immigrant and Hispanic workers are too poor to buy the required hard hats, metal mesh gloves or earplugs that would help protect them from serious hazards.

In addition, the nation's laws make it difficult for workers to build the best protection on the job -- a labor union. When workers can come together in unions, they not only earn more money -- over 50 percent more, in the case of Hispanic workers -- but they also have a voice on the job and a say in issues such as health and safety. When workers feel they have power on the job, they're less likely to give in to management's demands that they take risks or work unsafely. Yet employers routinely violate workers' rights when they try to improve their lives with unions, and too often fire or harass workers. The laws and penalties are too weak to stop them.

This Workers Memorial Day, let's demand better. Let's call for safe jobs, support from the Bush administration for real workplace safety and the freedom for all workers to freely choose to form unions. We must end the rampant workplace deaths and injuries among immigrant and Hispanic workers, and bring their suffering into the light of day.

Chavez-Thompson is the executive vice president of the AFL-CIO.

Measure aims to benefit state as retirees die

By L.M. SIXEL

Several large companies have secretly insured the lives of their low-level employees and profited when they died.

Now a Dallas-area legislator wants to allow the state to do the same thing for retired state employees.

A bill pending in the Texas House would let the state buy so-called "dead peasant" life insurance for retired public employees and then cash in the policies when the retired employees die. Consent of the retirees would not be necessary, according to the bill introduced last week by state Rep. Kenny Marchant, R-Carrollton. The bill would give the state an "insurable interest" in the lives of state retirees.

The principle of insurable interest has guided insurance law in Texas for more than a century and has prohibited those without a strong financial interest -- close relatives, creditors or companies insuring top executives -- from buying policies on individuals.

That changed in the 1999 legislative session when a little-noticed bill sailed through both chambers and was signed by Gov. George W. Bush. Under the new law, a company has an insurable interest as long as employees give their written permission.

Marchant's bill may make it easier for a company to claim that if the state has an insurable interest in its retirees, then a private employer should be allowed to have one in its employees as well, said one observer who asked not to be identified.

Under the bill, a portion of the death benefit would go to the "appropriate state retirement systems," but it's unclear where the rest would go.

Marchant did not return a call for comment.

"Is that a new form of a state lottery?" asked Richard Shaw, secretary-treasurer for the Harris County AFL-CIO. "They can call it: You Bet Your Life."

Houston Democrats Sen. Rodney Ellis and Rep. Ron Wilson have bills pending that would prohibit a company from designating itself as the beneficiary.

"I have the utmost respect for Chairman Marchant," Ellis said in a written statement. "He and I are working closely together on bills to enhance Texas corporate integrity.

"I will respectfully disagree with his stance on this one, though," Ellis wrote. "I have legislation to stop the private sector from taking out dead peasant policies. The state ought not benefit from this behavior either."

Ed Sills, communications director for the Texas AFL-CIO in Austin, said he can't understand how the state can argue that it has an insurable interest in the lives of its retirees. If anything, the state has less of a financial stake when a retiree dies because the retiree's pension ends, he said.

Scott Clearman, a Houston lawyer who specializes in insurance and has sued Wal-Mart and Dow Chemical Co. on the dead peasant issue, couldn't determine the rationale for the bill.

Insurance policies are priced based on life expectancy and the size of the group insured. With such a short life expectancy among the retirees and a small pool of people, in terms of age, being insured, there appears to be no benefit or loss, Clearman said.

The policies are attractive to companies because of tax benefits, he said. However, the state doesn't pay taxes, nor does it get tax deductions.

"From this angle, it looks like a subsidy to the life insurance industry," Sills said.

Depending on how many policies are purchased, brokers can earn considerable amounts in commissions, Clearman said.

And then the state would have to pay an administrator to do the "death runs" -- sweep the Social Security numbers regularly to find out who has died -- and make sure the insurance payments are properly paid.

"I can't come up with a reason for doing it," Clearman said.

U.S. Rep. Gene Green, D-Houston, who introduced legislation in Congress that would make companies reveal whether they had secretly insured their employees, was especially unhappy about the provision on retirees not having to give their consent.

"I want them to get my permission to buy a policy on my life," said Green, who himself is a retired state employee.

"Crazy things get done in Austin late in the session," he said.

Marchant's bill is set for a hearing Monday morning before the House Pensions and Investments Committee.

 Copyright 2003 Houston Chronicle