When is a Promise Not a Promise?

If you grew up in the '50s and '60s, like me, you remember a world where dads (and a handful of moms) went off to work every morning, and stayed with the same employer for years and years. After 30 or 40 years, those dads retired with a company pension, usually enough to keep them comfortable, if not wealthy, through their remaining years.

Sounds like a fairy-tale today, doesn't it? Who still stays with the same company for 40 years? As for company pension plans, what are they? If you're lucky, you have a 401(k) that you've been lugging around with you from job to job, and which -- given the vagaries of the market -- is probably worth a whole lot less than you thought it was going to be worth in late 2011.

Some of us even bought the line that companies fed us: that they needed to get rid of massive pension-plan schemes to remain competitive with international firms that had no such obligations.

But the truth is a little different.

According to Ellen Schultz, Wall Street Journal reporter and author of a new book, Retirement Heist, "When companies began cutting benefits it wasn’t to remain competitive because the plans had a huge surplus and there was no cost to the company. What they were doing is taking the plan and finding a way to convert some of the assets into a benefit for the company and also to boost their profits." (Click here for a transcript of an interview with Ellen Schultz on NPR's Morning Edition on 29 September)

From being significantly overfunded in the '90s, the remaining corporate pension plans are now significantly underfunded. As an example, in the late '90s, Schultz reports, GE's pension plan had a $20 billion surplus -- even though it had not made any contribution to the fund since the mid-1980s. Today, GE's plan is underfunded by $5 billion. What happened?

When companies started looking for ways to get rid of older (read: more expensive) employees in the early '90s, Schultz writes, they could have offered those who were laid off a generous severance package. 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." The problem is that you have just added a person to the eventual pension pool ... without having increased the pool's funds.

"Cutting the benefits actually gives companies a boost to profits. It’s an accounting effect. If you promise to pay $100 million to retirees, that’s a debt on the books. If you cancel that debt, then you get to keep the profit," says Schultz. So pension dollars were used to finance downsizings, and to sell assets in merger deals.

Meanwhile, of course, senior executive pay and pensions continue to rise dramatically. Today's New York Times carries an article by Eric Dash, who writes drily that "the golden goodbye has not gone away."

It's one thing to reward a retiring CEO for a brilliant tenure, but consider these examples that Dash cites:

• $13.2 million in cash and stock severance, in addition to a sign-on package worth about $10 million, for Leo Apotheker, just ousted from Hewlett-Packard after 11 months;
• $17.2 million in cash and stock in August to Robert P. Kelley, ousted from Bank of New York Mellon;
• Nearly $10 million to Carol Bartz after her ouster from Yahoo

Meanwhile, how many people are unemployed? How many have seen their unemployment benefits end? How many are underemployed?

None of the moves that Schultz and Dash describe appear to be illegal. But grossly unethical? Oh yeah.