Nofsdad
Joined: 06 Jul 2003
Posts: 6727
Location: Central CA
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Posted: Mon Aug 04, 2008 3:51 pm Post subject:
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Great pull BC. Hope you don't mind if I hang my $0.02 worth on it.
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At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay.
In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives' supplemental benefits and compensation. |
Pretty damned disgusting, I'd say. I wonder how the shills are going to couch this one as some kind of necessity.
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| The practice has drawn scant notice. A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. |
Ah yeah but really... what's more important here, regular workers or already overpaid and otherwise over compensated execs?
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| Employers generally reveal little about it. Some benefits consultants have warned them not to, in order to forestall a backlash by regulators and lower-level workers. |
Yeah, I can flipping imagine.
But NOOOooo, these rich execs and institutional shareholders don't enrich themselves at the expense of the rank and file. That's just our imaginations and/or class warfare conspiracy theories, eh? That's what the shills say or at least try to imply.
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The background: Federal law encourages employers to offer pensions by giving companies a tax deduction when they contribute cash to a pension plan, and by letting the money in the plan grow tax free. Executives, like anyone else, can participate in these plans.
But their benefits can't be disproportionately large. IRS rules say pension plans must not "discriminate in favor of highly compensated employees." If a company wants to give its executives larger pensions -- as most do -- it must provide "supplemental" executive pensions, which don't carry any tax advantages.
The trick is to find a way to move some of the obligations for supplemental pensions into the plan that qualifies for tax breaks. Benefits consultants market sophisticated techniques to help companies do just that, without running afoul of IRS rules against favoring the highly paid. |
Sophisticated? There are other words that would fit just as well. You know damned well that if these execs and their ilk were as honest and on the up and up as the shills would have you believe, they wouldn't employ batteries of lawyers and accountants whose sole purpose is to come up with crap like this. They must figure the return is worth the investment, right? It certainly was for Intel:
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Intel's case shows how lucrative such a move can be. It involves Intel's obligation to pay deferred compensation to executives when they retire or leave. In 2005, the chip maker moved more than $200 million of its deferred-comp IOUs into its pension plan. Then it contributed at least $187 million of cash to the plan.
Now, when the executives get ready to collect their deferred salaries, Intel won't have to pay them out of cash; the pension plan will pay them.
Normally, companies can deduct the cost of deferred comp only when they actually pay it, often many years after the obligation is incurred. But Intel's contribution to the pension plan was deductible immediately. Its tax saving: $65 million in the first year. In other words, taxpayers helped finance Intel's executive compensation. |
Seems the taxpayers are being called upon to finance a lot more crap for these multi billion dollar companies than ever before.
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