Wall St. Journal: Companies Tap Pension Plans to Fund Executive Benefits

Companies Tap Pension Plans
To Fund Executive Benefits

Little-Known Move
Uses Tax Break Meant
For Rank and File


By ELLEN E. SCHULTZ and THEO FRANCIS
August 4, 2008; Page A1

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.

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. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.

How many is impossible to tell. Neither the Internal Revenue Service nor other agencies track this maneuver. 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.

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. ......(more)

The complete piece is at: http://online.wsj.com/article/SB121761989739205497.html?mod=mktw

Basically it's like taking someone who had a CD paying 4%, without their knowing investing it in stocks, and paying them 4% if stocks go up and declaring bankruptcy if stocks go down. For taking that risk, they should get the 7% expected return from stocks not the 4% of CDs, so this is stealing 3% of return. Same trick as replacing Social Security or pensions with 401ks that offer the same expected return. Other times, when a swindler tricks old ladies into lending money by promising to manage it safely, and then goes and gambles it, the swindler gets sent to jail.