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Every January, Social Security recipients are used to opening up their checks and finding at least a small cost-of-living increase in their benefits. But this month, for only the third time in 40 years, they won’t be seeing an extra penny.
Meanwhile, CEOs of top U.S. corporations are amassing nest eggs that are larger than they could hope to spend in one lifetime. A recent report I co-authored for the Institute for Policy Studies and the Center for Effective Government reveals that the 100 largest CEO retirement accounts are equivalent to the entire retirement savings of the bottom 41 percent of American families. The average CEO’s retirement fund in this top tier is worth $49.3 million.
There’s a connection between the retirement insecurity experienced by millions of Americans and the gigantic nest eggs enjoyed by CEOs. Executives are often personally rewarded for slashing worker retirement benefits.
Here’s how it works: the executive scraps his employees’ traditional pension plan in favor of a much less generous and riskier 401(k) plan—or no benefits at all. This cost cut boosts company profits and stock prices, which in turn boosts the value of the executive’s stock-based pay.
At the drug wholesaling giant McKesson, for example, John Hammergren froze the employee pension fund shortly after becoming CEO in 1996, closing it to new employees. But that didn’t stop the company from launching a lavish executive pension plan. Over the years, Hammergren has accumulated $145 million in his McKesson retirement assets—enough to generate a monthly check of $819,243 when he retires.
At General Electric, CEO Jeff Immelt closed his company’s worker pension plan in 2011, substituting it with a riskier 401(k) plan. Immelt’s company-sponsored retirement assets have ballooned to more than $82 million.
Contrast these absurd sums with the average Social Security benefit, which runs less than $1,400 per month. The lack of a cost-of-living increase in 2016 will hit hardest the roughly two-thirds of retirees who rely on Social Security for more than half of their income.
With the aging of the Baby Boomer generation, retirement insecurity will get worse. Of people in the workforce who are 50-64 years old, 29 percent have no company-sponsored retirement benefits and will likely be wholly dependent on Social Security.
Retirees have been flooding congressional offices with angry calls and letters. They have, after all, worked hard to earn these benefits. And many have pointed out that while falling gas prices have lowered expenses for many Americans, older people who generally don’t drive as much as regular commuters are getting whacked by rising prices for pharmaceuticals and other necessities.
In response, Senator Elizabeth Warren (D-Mass.) has introduced the Seniors and Veterans Emergency Benefits Act (SAVE Benefits Act), which would give Social Security beneficiaries a one-year increase worth 3.9 percent of the average annual benefit (amounting to about $581).
Warren has picked a fitting way to pay for this increase: closing a loophole that encourages excessive CEO pay. Specifically, her bill would eliminate an amendment to the tax code that allows corporations unlimited tax deductions for executive compensation so long as that pay is in the form of stock options and other so-called “performance based” pay.
As Senator Chris Murphy (D-Conn.) put it in a speech in support of the SAVE Benefits Act, “You live in a world today in which there is this perverse system—the more corporations pay their CEOs, the lower their tax bill is.”
The Joint Committee on Taxation estimates that eliminating this loophole would generate more than $50 billion over 10 years.
What are the odds of the U.S. Congress passing this bill in time to make a difference for struggling retirees? Slim. As of publication, not a single Republican had signed on as co-sponsor. And yet, as Senator Ed Markey (D-Mass.) commented in a floor speech, the bill is provoking a critical discussion about “who has contributed the most to our country over the last generation—a small handful of people at the top or everyone in the country who got up every single day, who are the people we now call grandma and grandpa?”
In the wealthiest country in the world, there’s no excuse for denying anyone a dignified life in their retirement years. And yet what we’re seeing is a growing divide, with millions of older people at the bottom having to scrape to get by while those at the top are sitting on retirement accounts so obscenely large they are anything but dignified.
Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-author of the report “A Tale of Two Retirements.”