 Hello, everyone. Welcome to the New America Foundation for the event, Retirement Heist, Overlook Causes of the Retirement Crisis, which is the topic we'll be discussing, stimulated by this very provocative, I won't say stimulating, but provocative new book by Ellen Schultz, Retirement Heist, which is informed by her Pulitzer Prize winning reporting over many years and really ties it together nicely. So this event is co-sponsored by New America Foundation by the Pension Rights Center and by ARP. And so we're all playing a little role and it's great to see such a large audience. There's still some seats up in the front. If anybody, I know there's TV monitors, but if you want to get a better in-person view, I think there's probably 10 seats up toward the front here. So the way we're going to do this is have, since Ellen's book inspired this discussion, we'll have Ellen Lidov and give an overview of the book and the sort of things that she has found out through her reporting that have some real policy implications here in Washington. And then Phyllis Borsi, the Assistant Secretary of Labor for Employee Benefits, will give her perspective on some of these same issues, not only as Assistant Secretary, but in her long career before on the Hill and in private practice. And then we have three respondents who will speak more briefly, but kind of give their varying perspectives so that all together we should have quite an interesting bunch here. So I want to introduce David Sertner, who is our moderator today. David is the Legislative Counsel and Director of Legislative Policy for Government Advocacy at ARP, where he's been for going on 20 years. You may now want to admit that. Going on 30? Oh my gosh. Okay. Well, again, we're not lacking in experience on this, in this event today, I must say. So, so you all are blessed with that. So David, would you like to take over? Thank you, Michael. Thank you for everyone here today. And I know we've got a lot of good folks here. So let's dig right in. Let me first introduce Ellen Schult, who is a formerly investigative reporter for the Wall Street Journal. And she has won dozens of journalism awards over the years, including three pulks, two loaves, as well as a National Press Club Award. And of course, one of the teams she was with at the Wall Street Journal was awarded the Pulitzer Prize for some of her articles on corporate scandals. And this leads perfectly into some of the things that Ellen raises in her book that talks about some of the pension issues over the year and really uncovers a lot of details and stories that many in the public don't know. And I've had the pleasure with being able to work with Ellen over the years. And I can say is having talked with many reporters over the years, I think there are very few and I probably put Ellen on the top of that list to actually have something to tell me in terms of substance instead of the other way around. And she was always bringing new information to an issue that she'd uncovered by her work just going through corporate papers and corporate filings and has done a tremendous job I think in this book really going underneath and actually bringing to light some of the practices that have done I think some damage to the pension system over the years. And also following Ellen will be Phyllis Borze, the Assistant Secretary of Labor at EBSA, which as many of you may know oversees nearly 700,000 private sector retirement plans as well as two and a half million health plans. And she oversees the administration regulation enforcement of ERISA. Prior to going to the DOL, Phyllis worked as a professor at GW's Public Health and Health Services School as well as at a law firm doing ERISA work. But prior to that and where I first got to know Phyllis when I started a long time ago, actually Phyllis is the very first person I got the lobby on Capitol Hill when she was the Pension Council for the House Education and Labor Committee at the time. And if there is a more dedicated public servant on pension issues in this country, I don't know who that might be. So I'm very happy that she's here as well. So please let me turn over now to Ellen. First, I'd like to thank, of course, the New America Foundation, Mike Calabrese, ARP, and Pension Rights Center for organizing this event. It's one of several appearances I've made since the book came out. There's been some interests like NPR, the Public Library, and Comedy Central. That one was unexpected. And the host actually raised a couple of good questions before the program. He came in to the green room and he had two questions. The first question was, is this legal? The stuff you describe in your book, is it legal? I said, well, mostly. The second question was, well, is it legal to give someone a lump sum that isn't the actuarial equivalent of the H-65 annuity? Now, he didn't use those exact words. But that's what he was getting at. So he was struggling to understand what I was saying in there. And his conclusion was, it would be too hard to talk about that on the air. And second, he said it made him angry reading the book. And I've heard that from a lot of people. They say, they got angry reading it. We're talking about people on both sides of the aisle. Wall Street Journal, readers, conservative readers, unions, a lot of broad swaths of the population. And it also made companies angry, but for different reasons. And I think it's pointing out, or the premise of the book is that large corporations played a very large role in the retirement crisis. Because we're all familiar with how pension plans, a private sector, are about 20% underfunded now. Many companies are freezing their plans or have frozen their plans. And the notion is that these pension plans are going away. I do remind people, though, there are 44 million people in private pension plans. That's about evenly split between retired and active people. So this really affects a large group of folks. So let's talk about one of the easier to understand things that companies did that eroded security with the pension plans. Barely 12 years ago, there was a quarter of a trillion dollars of surplus assets in pension plans. That's $250 billion extra. So these plans had enough to pay all the benefits as long as anyone lived, even if they outlived their life expectancy. But what companies have done over time is they have treated the pension plans like piggy banks. Now that seems harsh, but let's talk about the various things they did to tap the money in the plans. One of the biggest things was they use the assets to finance restructuring. So if you want to get rid of 50,000 older workers, you can't just pull the money out and say, here's severance. But what you can do is give them extra pension money, and that gets around the role of, you know, you can't use it for severance. So this took out billions from the plans. So let's talk about GE, which started out with 25 billion in surplus assets. AT&T had 20 billion. IBM had seven. Let's focus on what Verizon did. At the very beginning of the 2000s, it had 24 billion in surplus. So what happened? Now, of course, it has a deficit of 3 billion. What happened? Well, obviously, the stock market happened. First, you had the tech bubble, and you had interest rates go down. But what also happened is that they used billions of dollars to pay for downsizing. And this was something that was common among all companies. So they started to run out of money. It's the surplus was eroding. So when the surplus was down to only 1.7 billion, they froze the plan. That was the solution here. So let's freeze the plan. That helped because it made it better funded by 3 billion, because that was 3 billion that's not going to go out to people anymore. But they continued to pull money out. So where are they now? They're frozen and they're underfunded. And this cycle has been repeated at many companies. Ford, 2007, 2.4 billion out of the plan to pay for, you know, essentially early retirement benefits. GM 2.9 billion in 2008. So these are companies that already weren't on really solid ground with their health and funding. Other things they used it for, they used it to pay for retiree health benefits. They used it, you know, DuPont 1.7 billion. They used it to pay for parachutes for executives. And this might strike some people as odd because you're supposed to use pension assets solely for the benefit of the participants in the plan. But there are a number of loopholes that companies developed and used that enable them to use the assets to pay for things like parachutes. And the lovely thing about that is it gets around the excise tax on golden parachutes. So one use. The other use, of course, was a bit broader. They were able to use a large portion of the funds in many cases to pay for deferred compensation and supplemental pensions for executives. The technique is too complicated to go into, but I'll give you a couple examples. Intel, using one of these maneuvers, was able to put $200 million of deferred compensation for its top 3 to 5% of its workforce into the pension plan. So the odd thing is a large part of that pension plan, which is tax subsidized by taxpayers, is there to pay for deferred comp, essentially salary for the top 3 to 5%. Not something Congress originally intended. Now Intel's plan was healthy. They didn't do anything illegal. The problem is when companies that weren't healthy and had sick plans did this. And I describe in the book several of these kinds of incidents like with a trucking company in California that moved all its executive liabilities into the plan as it was going into bankruptcy. So the whole thing went splat. The other thing they did was selling the assets in mergers and acquisitions. The simple thing would be you're selling a unit, you send over the pension, you send over some extra surplus money, and maybe you get seven cents on the dollar. You get a better sales price. Now I know the companies don't like me to characterize this as selling, but what I should do is send, you know, companies like GE, a copy of a paper by Michael Melbinger, who was a partner with Winston and Strawn in Chicago, who actually uses such words, you know, GE got a higher sales price for its aerospace division when it transferred a portion of its surplus assets. So it's not me saying this. This is what the lawyers and consulting firms themselves said. Now the other thing, of course, that eroded assets was companies loaded up on their own stock. You can get up to 10% of assets in company stock. Not a good idea, not diversified. You can also put company real estate in there. Again, you have that 10% limit. But again, not necessarily a good idea. I also saw a pattern of companies terminating healthy plans. We all have this sense that if a company had a pension plan and it terminated it, it's because the plan was costly and they had no choice. But in many cases, I found if they had a very healthy plan, they wanted to kill it off because they could use a loophole that enabled them to capture a lot of the surplus assets, much of it tax-free. Montgomery Ward did this, for example. It got millions of dollars, much of which went to creditors when it went into bankruptcy. The other thing I noticed, which has been in the news and you've noticed as well, is that the many companies essentially starved their pension plans. Well, everybody else had plenty of assets and surplus. There were some that never got very healthy, like the airlines. So they were, in many cases, selectively starving certain pensions. And when they went into bankruptcy, US Air, for example, said to the court, we have to get rid of the pilot's pension plan or else we won't emerge from bankruptcy and the whole, you know, this would be bad for the whole world. So they were allowed to dump the pilot's plan. The Delta pilots suffered a similar fate. And thanks to various provisions in the rules of the Pension Benefit Guarantee Corp, a lot of these pilots lost most of their pension. I mean, the PBGC exists to protect people and it does. It does a great job. Most people get their pensions. But in some of these situations, the pilots ended up with almost nothing. So apart from using the plans like piggy banks, companies were also using them as cookie jars of earnings enhancements. I'll explain how this works. If you want to replenish those surplus assets that you've been draining out, one way you can do that is you can cut benefits. And that's what a lot of the large companies were doing in the 90s. They began to cut pension benefits even when they had billions of dollars in surplus. And the reason for that is that if they cut the benefits, not only would they keep the money, but under accounting rules they were able to report this reduction in the IOU, i.e. if you're not going to pay out 500 million, you're able to report that essentially as income. So you not only keep the money, but you get this boost to your income. So there was billions of dollars of income going into the companies because of cuts, not just in their pension plans. The same accounting rules work with retiree health benefits. So you found companies, waves of companies cutting retiree health benefits at the same time when those new accounting rules came into effect. You found them cutting retiree dental, cutting spousal benefits, anything that's paid in the future. So they essentially, many companies cannibalized their retiree benefit plans because you could get it down to the penny. You could say we need two cents of share to meet our earnings target and you could get that because you could calculate. You have a lot of control over how the liability is measured. Unfortunately though for retirees and employees, this ability to use your plans, your retiree plans, to help your profits coincided with a change in executive pay. As you know, the rules changed a bit. So companies started to award executive pay based on performance. So they'd be able to deduct more of it. So you saw you know the stock options being awarded, restricted shares, executives own compensation would be enhanced by you know enhancing income. So there was this correlation then, the ability to cannibalize your retiree plans coincided with, gee if you do that it increases the stock price and thus executive pay. I'm not saying that they sat down and said, hey let's kill the retiree benefits and boost our pay. I don't think people thought about it that straight in such a straightforward way but it was the result. And so we saw this helping boost these the executive pay into this sort of stratosphere that everyone's been complaining about. The problem for companies though is you have big pay, two things happen. One is you defer a lot of it, so you don't have to pay taxes immediately. But what is this? It's an IOU to the executives. So there were billions of dollars owed to executives that were creating a pension-like obligation that hurts earnings the same way a pension plan does. Meanwhile, their own pensions which are based on pay get larger. So you have these two things happening. You have these executive pensions, very large ones, and you have their deferred comp. See these two pots of liability which are landing on earnings the same way that your regular plans do. And companies would complain and say, oh our costly pensions, you know, woe is me. And sometimes you'd look at the filings and you'd see, well the only thing costing them was the executive pensions, not the regular ones. There were examples in the filings of truly astonishing pensions levels like at McKesson, the drug distributor, 90 million dollars for the top guy there, the CEO, Hammergren. Chesapeake Energy, 120 million, one guy. And I found that you could see disparities at some companies like at Chesapeake. The 120 to one guy, what was the liability for everybody else, the 8,200 people? Zero, because they don't have pensions. Another one was, say, Massey Energy where the, you know, I measured up the amount paid out to Blankenship when he left last year. You recall Massey was in the news because they had the upper big branch mining disaster, 29 miners died. The end of the year, Blankenship leaves and his total payout is more than 50 million dollars, that's just for him, one guy. The same time, same year, for thousands of miners, the total amount paid out for their pensions, for their retiree health care, for their traumatic workers comp, which means crushed limbs, missing fingers, things like that, and black lung benefits, all of which are liability, 37 million, 37, 50. You can sort of see the gap there. When you add up all these liabilities, you get astonishing numbers and they found that at some of these companies, they owed billions of dollars. Let's look at the liability. Fannie Mae, 500 million owed to its executives. Citibank, 5 billion owed to its executives. JP Morgan, 8.2 billion, and these figures are out at date now, but 8.2 billion to their executives. So apart from the fact that the executive pensions were becoming very costly and hurting earnings, we saw that there were a couple things companies were doing that to help offset this impact on earnings. One was to use the regular pension plan to try and pay for some of this executive obligation, which I've mentioned before. The other was sort of this odd practice of buying life insurance on the workers. Now, people are surprised by this sometimes. They may have heard about it back in the 90s when companies were doing this as a tax dodge. You know, companies like Procter and Gamble had 15,000 workers lives covered, meaning when they die, either now or in the future, the death benefit goes to Procter and Gamble. Walmart thousands, Windixie, Nestle, 18,000 people, Disney. My favorite is Hillibrand Industries, the coffin maker. They also had that on there. Now, the reason they do this, of course, back then was primarily for a tax dodge because, you know, life insurance policies is almost like a giant IRA, you know, a bunch of money in it and it grows tax deferred. But it morphed into something a little different in the 2000s. What it changed into essentially was a vehicle for financing executive pensions and pay. How you may ask could this be? Well, again, it's a big pot of money. It's like a pension plan. It has a similar accounting effects. You have the income goes up, goes straight into the company's income, same with the pension, with a few little sidesteps, but it goes there. So you can't set up some kind of special tax sheltered plan for executives because you don't get tax breaks, but you could buy life insurance on tens of thousands of your workers and you essentially set up what is, you know, de facto pension fund to finance executive pay. And it's very hard to find the mention of this in some companies that call it mortality dividend. That's when somebody dies. You know, you get the money and they keep track of people by looking at social security records. So many people in this audience don't realize it, but when they die, they're former employer or current employer will get a nice death benefit. They'll just sort of scroll through the death index, social security number, get a pop to that. You put your claim into the insurance company. This was so common or this became to be such a liability that the insurance companies realize we have a lot of exposure, especially after September 11th. Towers, Perron had a discussion at one of their conferences about the risk that they face that, you know, they saw how much they had to pay out to the companies when people died in the trade center. Obviously they paid also for families, but a lot more went to the companies. So now they don't just put in social security and the age of the person, but put in their location. So if there's a mass shooting, building collapses, there's some natural disaster, they won't know what that risk is. They'll have extra risk if you have a big concentration of covered employees. Now, that's not something that's particularly egregious. It's just, you know, to me an abuse of tax rules. But if you look at how much life insurance they're buying, it does raise an eyebrow. In recent years, the banks, which have somewhat better disclosure, so I was able to see what this was, they really doubled up on the amount that they had covering their managers. They had, at J.P. Morgan, it had 11 billion last time I looked. 11 billion dollars of life insurance on workers. Wachovia had 12 billion. And my favorite, Bank of America, had 17.3 billion dollars. And all together the banks had 122 billion of life, you know, this will be death benefits coming into them over time as people die. So having, you know, given you an overview of the various things companies have done to, you know, profit from their plans, and as you could see the amounts go towards helping the executives, you might ask, well, is it still going on? How could it be? You know, the economy is down. I do, though, particularly like a white paper by Towers Perron. See, they call it white paper. In which they candidly discuss how, you know, freezing all these plans is really helpful to companies because you end up with extra money. You get surplus that you can use for all kinds of things like executive benefits, laying people off, retiree health benefits. All these things I'm talking about are things that they're talking about, that this good outcome from freezing these pension plans. So this isn't a distant pass event. It's something that's going on now, and it's something that will continue to go on if the rules aren't changed. So with that, I leave you and Phyllis will begin telling you other terrible things going on. Well, you know, in reading the book, I found it alternatively fascinating and depressing. The stories that Ellen tells of ordinary Americans represent to me after my 16 years on the hill extraordinary failures, failures of the system for these folks who believed that they had benefits that they earned and they thought they were going to get, but they didn't. I want to talk a little bit about what I see the overarching problems are and then hopefully our commentators will begin to focus on some of the specifics here. As I look around the room, I see a lot of familiar faces. So it's no news to anybody here that over the past few decades, the trend has been against the continuation and maintenance of traditional defined benefit plans towards a system of individual investment and individuals taking responsibility for their own retirement. Now, I'm not someone who's against individual responsibility. I think it's an important part of our American values that people have to take responsibility. But I think this trend away from traditional defined benefit plans says a lot about the interaction between corporate America and the workers of America. And part of what we're seeing in this very slow climb out of the economic decline that we are in reflects those changes in attitudes. If you look at what retirement security look like or retirement plans look like in 1975, right after the passage of ERISA, most private sector workers who had coverage had it under a traditional defined benefit plan. And these were large professionally managed funds. Yes, there were a bunch of small funds. People always talked about once ERISA came in, all these pension plans terminated. Well, they were primarily small plans that never provided any benefits to anybody anyway. So in terms of overall coverage numbers, I'm always skeptical that there was a lot of loss in many of these small plans. But in 1975, we had defined benefit plans, large professionally managed funds that covered about 27 million active participants. And they had about $186 billion in assets. In contrast, in the individual account marketplace, which were primarily profit sharing plans or some of the other individual account-based plans but which also used professional asset management, there were 11 million active participants and assets of just $74 billion. If you fast forward to 2008, what you see is the number of defined benefit, the number of participants covered by defined benefit plans fell to just about $19 million. And the number of people covered under individual account plans, which of course, in 1975, there were no 401K plans. They didn't come into the code until 1978. So what you had in 1975 were 27 million in DB plans, 11 million in individual account plans, and you see the flip side of that in 2008. 19 million in DB plans, 67 million in 401K plans. And so 95% of the participants in 401K plans were responsible for directing the investment of all or part of their own account. Now, some might say this was a good trend. For a long time, we thought retirement security plan A was DB plans. Now DB plans have sort of fallen out of favor and I'm going to talk about why in my own personal opinion, this is the case. But so then they were replaced by 401K plans. Those were the silver bullet. Now, after from about 2008 to the present, we can see that 401K plans are not there to do the job. The problem is we don't have a plan C. We had plan A. We had plan B. Now, of course, somebody like me would say plan C is social security, but social security is under assault now as well. So people are struggling now and I think it's good that people are talking about how to move forward, whether we need a new kind of pension plan. I think it's very amusing to me that having destroyed all the DB plans, we're now talking about taking all the features that made DB plans so good for workers and grafting them on a DC plan, except for the most important feature of all, which is the shifting of investment risk. But that's another story for another talk. That's not really what Ellen's book is about. Ellen's book is about the failure of the DB system to provide those benefits that people were promised and earned. So why have these defined benefit plans declined? Well, being an arm chair philosopher myself, having 40 plus years of experience in this area, I've seen a lot, both when I was on the hill and in the private sector. So my comments really are an outgrowth of those experiences. Defined benefit plans are complicated. They lack transparency. People don't understand what their benefits are in any given point on the employment spectrum. It's different when you've got a 401k statement in your hand, and it says your account balance is X. So DB plans of their very nature, a lot more complicated, a lot more transparent. From the point of view of enforcement, what that means is that employers who hire a veritable army of service providers to help them structure these plans, employers hold all the cards. It's virtually impossible for a participant in a defined benefit plan to figure out until after all is lost and the plan's been changed that they aren't going to get the benefit that they thought they'd get. So the complication, the lack of transparency, really means that employees can't police their benefit plans to make sure that they're getting what they were promised and deserved. Now Congress in Orissa and Congress's since Orissa have tried to compensate for that by having disclosure rules and God knows we at the Department of Labor enforce a lot of disclosure rules but the real problem with disclosure is that it's very easy for people to play hide the ball in disclosure even when they're trying to do their best. My own staff will tell you that I'm constantly complaining that the regulations and the other kinds of guidance that I get are not understandable and if I can't follow the complicated rules how in the world can the people out there in the world the employers who may be wanting to do the right thing and I believe most employers do want to do the right thing how can they figure out what the rules are? So there's disclosure okay but it's complicated it's not straightforward and I love to tell the story of the very first day that I was in private practice. I was given a stack of SPDs summary plan descriptions for the people that don't know what these acronyms are and I was told to update them Congress had just passed some new laws and I foolish person than I was took the statute at face value the statute says that the summary plan description has to be written in language understandable to the average plan participant and when I proudly took my stack of SPDs to the senior partner in the tax department in which I was working he looked at them with horror he said don't you understand what you do with an SPD is you take the trust agreement and you take the paragraphs out you do not write things in simple descriptions because then there'll be a discrepancy between the SPD and the trust document and God forbid we should have that so it's been years and years and years I've made it a private crusade when I was in private practice to make these SPDs more readable but disclosure doesn't solve the problem you know we've heard for a long time that employees don't understand and don't appreciate defined benefit plans maybe that was true in the old days but I think employees today understand and appreciate the value of the DB plans but in many cases unfortunately it may be too late DB plans the criticism of DB plans again why the decline has been that the funding roles are influx and that volatility is a problem companies want certainty they want a smooth certainty about their funding obligations and so the contributions are unpredictable because they vary based on investment returns and certain other things and I guess I can repeat what I've been widely quoted as saying before I became an administration official although this may be not consistent with the administration message I think the pension protection act was valuable in putting the final nails in the coffin to define benefit plans I think it was a big mistake I don't support companies not funding their pension obligations I do but it turned out to be something that was not a viable solution to the to the pension funding problems and of course then we have as Ellen mentioned the FASB liability it really drives me crazy that pension decisions are balance sheet decisions and when I served as the pension fiduciary the chair of fiduciary committees overseeing a couple of nonprofit pension plans to fight with the treasurer of the organization who wanted to make all pension funding decisions based on their FASB liability rather than their fiduciary liability the fiduciary liability of those of us who are named fiduciaries under the plan the treasurer being a mere ex-officio member of the pension committee so it drives me crazy but it's true that FASB liability the effect on a company's balance sheet often drives their pension decisions and then of course I've said a million times over one of the biggest problems in the lack of interest anymore in defined benefit plans goes back several decades to when congress was constantly ratcheting down the 415 limits my first boss in the ERISA area and my mentor Steve Shaneis died last year and I remember when I got my job on Capitol Hill in February of 1979 Steve gave me what I thought was an excellent piece of advice he said remember because you're so gung-ho and protecting participants that you can go too far and if the people who make the decisions about the shape and structure and continuation of the plans don't have an interest in that plan anymore then we're in trouble and I think what congress did in the 80s in terms of constantly ratcheting down the 415 limits are the perfect example of that once we pushed all the high paid people out of DB plans there wasn't much interest in continuing the DB plans Ellen's book tells us the story of promises made to workers that were altered when companies found them either too expensive or inconvenient to keep or decided that the interest of their shareholders took precedence over the interest of their workers so now here's the indictment of the corporate philosophy that you've all been waiting for again speaking for myself the fact is that if you look back and I can look back because I'm old enough to look back when these decisions to establish to find benefits were made we had a different breed of CEO we had corporate officers who understood the value that their workers brought to their enterprise and we've seen a dramatic change the CEOs who made that DB promise are not there anymore new corporate management is focused more on the bottom line and return to shareholders and the globalization of the economy has pushed companies more and more to be concerned about that you know I was telling David just before we came up here that I always think about that moment some of you may have been there remember the department of labor as part of a law was required to have these national retirement summits and the first one I went to there was a panel of corporate um benefits people or corporate officers talking about their commitment to workers and retirement security and I don't generally like to name names but I'm gonna name names because it it was so striking to me the person that represented IBM on this panel was not their longtime benefits person Bob Stone IBM had long had a reputation which they which they kept to of paternalism it was a young woman who was the head of their global initiative I forget her title now but it was a young woman she spoke for 10 minutes and there wasn't a syllable that she said in the 10 minutes that talked at all about the company's responsibility to its workers she talked about individual responsibilities she talked about how important it was for people to save for their own retirement and basically her message was we don't have any responsibility to our employees I thought that was a turning point and it certainly says a lot about what the shift that we've seen there's been a tremendous breakdown and trust between employees and their employers years ago employers cared about their workers they cared about the community in which their their workers worked they cared about their retirees even though the retirees were no longer part of their active workforce they felt a commitment to the retirees because they had been there to make the company function I don't see much of that anymore maybe I'm just not looking in the right places and so when companies don't show their employees that they value them employees tend not to trust their employers and of course in the DB world the role of various surface service providers consultants lawyers actuaries et cetera are very very important Ellen said this but I want to underscore it to me in reading the book and as others read the book the shocking thing about this book is that I saw very little in it that was illegal and that says a lot about what's going on here and and why is that well here just another a few things I guess which will alienate people in the audience too but I'll say them anyway because I think they need to be said one of the problems is this legal distinction between set law functions and fiduciary functions ordinary people don't get it set law functions at least according to the court our functions the courts are functions in which the company gets to design the plan sponsor gets to design the benefit plan that they promise and changes to that plan design are not actionable as fiduciary duties by and large in the multi employer context they may be but but by and large they're not so these kinds of changes that companies were making to alter their benefit formulas to convert from DB to a cash balance plan these were all characterized and properly so in most instances as set law functions so even though they had a dramatic negative impact on workers particularly older workers and they may not have been fully disclosed or at least disclosed in a way that workers understood that their benefits were being pulled out from under them the fact is that what they did was by and large legal it's very interesting to me and I guess now that I'm back in the government I get to see this a lot because part and parcel of almost all of these controversial changes were ex-government people the people that work for me I'm so blessed they're wonderful they're talented they're working for the taxpayers but you know once they leave they have different clients and different loyalties and the reason they're so coveted by law firms by consulting firms by other service providers is because they have an inside an insider's view they can tell you how to navigate the system they can tell you they've probably written a lot of the regulations so they can tell you where the loopholes and the flexibility is and if you look at the examples in Ellen's book a lot of them involved in some way shape or form former government employees who are using their terrific intelligence and creativity to help their new clients and so that's it the other thing that always bothers me about this is people who push the envelope and a lot of people do because the government just doesn't have the resources to go after everybody the problem is they don't push the envelope and then keep quiet about it they push the envelope and then have to brag about it so Ellen talks about speeches about white papers about conferences because once you figure out a loophole you want the next client to hire you so you're busy telling everybody about the loophole now you'd think that this would help regulators but it doesn't really when I was on the hill right after we passed a law I would run around to all the conferences and listen to hear where we made mistakes where we created gaps where we didn't quite nail the problem that we had and why did I do that? because I was interested in making sure that the problem we were trying to solve that actually gets problem but I'm here to tell you that the regulators are generally unable to react to market trends soon enough to intervene when potential problems arise and I think this is true I'll use the cash balance conversion not all cash balance conversions were bad but the ones that were were really very harmful to retirees and to workers so particularly older workers but by the time the regulators caught on to what was going on the horse was out of the stall or whatever those cliches were and you know I'm also here to tell you that Congress is even less well equipped to deal with this stuff by the time Congress gets around to it Congress only has blunt instruments to work with legislation and the legislative process is such a give and take so that those with the most money have the most influence now I'm not telling you anything that you don't know but as I said when I started the simple fact is as I read Ellen's book it's a sad book to me because it shows the story it gives a chronicle of broken promises and I wish I could stand here optimistically telling you that DB plans are going to come back I wish they would but if they do Congress and the regulators are going to have to take a heck of a lot more close look at what's going on so I thank Ellen for her book the stories the stories are overwhelming and but I I think it's time for all of us to roll up our sleeves and figure out how we're going to get over the current retirement crisis and what steps we're going to do to make sure that those workers who even today have been promised and earn benefits actually get them when they're ready to retire so thank you thank you Phyllis and Ellen and I invite the respondent panel up here and as they're coming up I do just want to say a couple things which is that part of I think the story that both Ellen and Phyllis just talked about is really that you know the retirement crisis say didn't just happen it was it was really occurred because of choices that that people made particularly people in positions of authority and it's a warning I think to us in the future too because the choices we make now are going to have a deep impact on the retirement income security of workers in this country in the future and I know we have a tremendous I think retirement crisis ahead of us and we really need to take the steps to address it today. Let me introduce the respondent panel I'll start at the far end with Michael Cal Breeze who's a senior research fellow at the New America Foundation he has served as co-director of the next social contract initiative initially developed some policy proposals for a universal 401k one of the positions prior to that was as benefits council at the national AFL-CIO next to him is Karen Ferguson Karen Ferguson is the founder and director of the pension right center founded in 1976 and for many of you who don't know the pension right center is a non-profit organization that works to protect and promote the retirement security of workers and retirees and pensions and just as my comment about Phyllis being a dedicated public servant I can't think of a single non-profit servant or any servant for that matter who has worked tirelessly over their lifetime to protect individuals and their pension plans as Karen Ferguson and also on the respond the panel is Don Ferrest who's recently retired from his position a senior partner and retirement consultant in at Mercer he's also a member of the American Academy of actuaries Don again has more than 35 years of experience as a benefit consultant and I think you know we have well over 100 years now of experience on our panel which someone in ARP loves to see he has been very instrumental in the development of several new pension plan designs and is also the author of several papers on retirement design and funding and so I'm pleased to have this distinguished panel here to respond so let me turn it off to Michael okay so yeah actually I think I'll go to that because we are webcasting welcome to the folks on the web which I'm sure outnumber those in the room although we have a great turnout thanks David yeah this was you know I think a very important book that Ellen's written Phyllis used the word paternalism and that was one of my you know big takeaways of the book really you know illustrates how what began as mutually beneficial paternalism by companies has become you know increasingly a tool for financial manipulation and too many broken promises um I've been aware of many of these practices for a long time not not so much in my think tank role here but because more than a decade ago the pension Karen and the pension Wright Center got me involved advising fledgling retiree associations at many of these at many of the companies that that Ellen mentioned that were kind of organizing themselves to to combat this you know and and in fact there's many now they under that umbrella they formed first a coalition for retirement security and later the national retiree legislative network and you know I I see that Bill Jones is here who's president of the largest of these the Baltel retirees and also formed protect seniors.org so I can tell you from you know first hand experience that Ellen is if anything under stating the degree to which retirees are in too many cases losing promise benefits and are at risk by these financial manipulations that would not have been tolerated 20 or 30 years ago so I just like to highlight three practices that she mentioned maybe more in a way of of you know of testimony or something just you know so you so you're not thinking that she's exaggerating three practices that I believe show the perverse incentives that now work against retirees each of which could be mitigated if Congress was willing so one is pension accounting credits that boost executive pay that was mentioned second is what I call backdoor reversions of pension assets in particular using pension assets to pay to make a lump sum severance payments in the billions and third is is pension liability spinoffs which is actually an increasing recent and increasing trend the growing threat that declining companies spin off their valuable lines of business and dump their pension plan back on the PBGC and taxpayers so pension accounting credits I think it was you know largely said by Ellen that a combination of new accounting rules right so the FASB 87 rule and a trend to performance pay for executives led companies to reduce reduce pension costs and manipulate assumptions about pension returns in part it's hard to say how to know how much but in part because that generates non-cash non-cash credits to reported earnings for example 10 years ago both Verizon and Quest used their pension funds to perform a kind of accounting alchemy they transformed but would have been operating losses into a reported gain and so they would have reported oh we we had a losing year well no no the pension fund cranks out some pension credits and now we have a positive year which triggers their short-term incentive bonuses at Verizon two-thirds of pre-tax net income in 2001 came from a $1.9 billion pension credit to earnings these are non-cash but by boosting reported earnings the credits boost executive pay that is performance-based which you know may be the whole point of the exercise in some cases retiree associations the ones I mentioned sponsored shareholder proposals that were adopted prohibiting executive compensation to be based on earnings inflated by pension credits however the Dodd-Frank bill failed to include this reform and it still should apply to every public company not just those half dozen that had active retiree associations a second perverse incentive is the ability to charge severance payments to the pension plan historically companies had always you know for what decades and decades had set aside a restructuring reserve since severance is an operating expense not a pension expense and in fact a risk of regulations explicitly prohibit pension assets to pay for quote layoff benefits however after the Supreme Court's decision in Hughes aircraft in 1999 that Phyllis I think was alluding to in part this strengthened the settler function over the fiduciary function of the management right away beginning in 2000 you see companies like Lucent, Quest, Verizon, GM and AT&T they became emboldened to take billions of dollars out of their pension assets to make lump sum payments of a year's salary or more in the worst cases companies such as companies including Delphi, Delta, United Airlines and GM have tapped pension assets in desperation as they spiraled down toward bankruptcy and their plans were increasingly underfunded as they drained them the problem is that in bankruptcy the terminated pension plan goes to PBGC and participants lose an average 30% of their vested benefits despite the guarantees even in companies that did not go bankrupt including Lucent, Quest and Verizon this practice led the companies to cut benefits for all retirees to make up for the hundreds of millions of dollars drained to make the lump sum severance payments because the companies didn't want to have to contribute so when the stock market went down they reduced benefits rather than contribute interestingly when GM used three well it's actually as Ellen said 2.9 billion in pension assets for lump sum severance payments during 2008 the Treasury Department wrote a prohibition of the practice into the bailout agreement for GM and Chrysler however when Congressman Pomeroy and Senator Baucus tried to adopt this as a general policy other powerful lobbies blocked it the administration seemed rather disinterested and it and it remains a reform that needs to be pushed through finally the last thing I'll mention is a third perverse incentive which is the ability of companies to spin off their pension liabilities by sending them off with an underperforming division or conversely to spin off the most profitable parts of the company and leave the retirees in a sinking shell likely to end up in a distress termination and taken over by PBGC a taxpayer expense the stakes are very high in these in these sort of transactions particularly for older workers and retirees because when underfunded plans are terminated according to you know these are PBGC statistics the share of vested benefits lost permanently has risen steadily over the years to to an average now of 28 percent per participant and for higher paid workers like pilots it's more like 40 to 50 percent of their of their vested benefits are lost forever unfortunately the PBGC cannot seek a remedy short of what they call the nuclear option in these situations which is to involuntarily terminate the plan this is a risk of section 4042 an example was just in 2008 was AHB low a Texas of a Texas-based chain of local TV stations and newspapers seeing that the newspaper industry was in a bit of a debt spiral it spun off all its newspapers into a new company you know the new below along with most of its pension liabilities keeping the very profitable broadcasting properties to itself the PBGC was able to negotiate a 30 million dollar payment to the spun off plan and negotiated just in January a similar 100 million dollar payment to the old Motorola when it's split in two however PBGC could have done more to protect participants if ERISA was amended to allow a remedy short of involuntary plan termination and former executive directors of the PBGC have recommended this so that is one more perverse incentive to profit off pensions that I think Congress needs to address and I hope we can talk a bit about again about you know how we can fix some of these things even if they're not currently illegal thank you I'm pleased to be here with you today as David mentioned I retired last year and thought I'd be spending all my time in Colorado skiing and mountain biking but that just couldn't keep my interest and I have accepted the position of Senior Pension Fellow at the American Academy of Actuaries and moved here to Washington to be with all of you as many of you know the American Academy of Actuaries mission is to serve the public and the actuarial profession by providing objective and nonpartisan advice on matters in which our profession has a particular insight so I hope to be able to provide that perspective for you today in retirement heist and in fact throughout her career as an investigative reporter Ellen Schultz has searched for abuses and other problems in the retirement field her writings have played a part in the process that's led to changes in the law intended to prevent these abuses we wouldn't be here today if it wasn't for her book and we need to have these serious discussions about retirement security however there's not been enough focus on sustainable solutions that work for all parties as a result reform efforts haven't stimulated growth in retirement plans but instead have increased the complexity of regulations and further encourage the decline of defined benefit pension plans one of the best tools available to help workers manage longevity risk let me give you a few examples one of Ms. Schultz earliest discoveries was of abuse and the change of a traditional final pay plan to a cash balance plan she found instances in which companies significantly significantly cut future benefit accruals particularly to long service employees while implying that benefits were being improved courts ruled that in many cases this was legal but the practice was certainly reprehensible the result however was a misguided campaign against cash balance plans as age discriminatory but not against the real problem after many years of debate most everyone agrees the cash balance plans could be age discriminatory if they provide above market interest crediting rates extraordinarily complex rules and regulations have been created to prevent above market rates the problem is that almost no cash balance plan used above market rates most of them use treasury rates however there was a real problem the so-called wear away rule a traditional plan could be converted to cash balance in a way that reduced or eliminated future benefit accruals for long service employees the pension protection act fixed that PPA requires a hybrid plan to use the so-called A plus B rule that eliminates wear away an approach that many in the retirement community supported but the amazing fact remains that other types of plans can still use the wear away rule a company can convert a final pay plan to a career pay plan and essentially eliminate future benefit accruals for long service employees why is that because the reform effort was focused on hybrid plans rather than on the real problems wear away rules and inadequate disclosure let's talk about disclosure for a moment miss Schultz again correctly writes that companies could simply describe the amendment rather than explain the real effective changes now we have expanded 204H regulations that require notice when benefit accruals decline what we ought to have is frequent communications that help people understand their benefits and plan for a secure retirement these communications should be throughout a person's career rather than just a requirement that to tell them when their benefits are being decreased so where are we now we have incredibly complex regulations to prohibit above market interest rates a problem that never existed we have prohibition of wear away rules in hybrid plans but not in other plans we have cumbersome and confusing regulations on disclosure concerning benefit changes but insufficient information to be helpful to retirees is this real progress let's look at another issue the accounting rules miss Schultz correctly writes about companies that cut back pension or retiree medical plans and boost earnings with gains they can immediately record she claims companies can put whatever they want on the balance sheet and then revoke the plan at a later date and take all that back as a game the whatever they want description trivializes the work of many competent professionals but that debate serves as a distraction there's a serious problem we really should be discussing current law allows a company to maintain a plan to provide retiree medical plans but also allows the company to eliminate that plan at any time current law does not require vesting of these benefits and it does not provide adequate ways to fund the benefits on a tax favored secure basis current accounting requires a company to record benefits as a liability if the plan is deemed to be ongoing but as soon as it ceases to be ongoing the liability goes of the way and the company books a big gain so why are we surprised at what this produces a company sponsors a plan for many years management supports the plan and books what it considers to be a good estimate of the obligation the company hits rough times the management turns over new management looks for cost cutting opportunities the retirement plans are quickly identified the new management didn't make these promises you know what happens next this model simply isn't sustainable for these plans we could simply blame corporate greed or we could ask some really tough questions that get to the root cause for example should a company record a liability for an obligation it can unilaterally revoke why are pensions subject to vesting but retiree medical benefits or not should companies promise retiree medical benefits without putting aside funds and a trust and finally if vesting and funding were required would companies voluntarily sponsored these plans there are problems with the current retirement system but we need to ask the right questions and have a full discussion about these issues if we're going to improve the system last example in the final chapter of miss schultz book we hear the sad story of a woman who lost 60 percent of her retirement savings in the recent stock market collapse and then she lost her job what's the conclusion never participate in a 401k plan again because they're too risky that is the wrong advice 401k plans and payroll deductions are one of the few ways that most people can save for retirement please don't tell workers not to do it instead give them the resources so that they can invest appropriately given their own personal situation in fact we should be finding new ways to encourage participation auto enrollment has been tremendously successful in this area and should be credited as such and expanded rather than criticized as a way around the discrimination rules as miss schultz does one final observation my experience in a long career in the consulting business has been very different from the narrative that I read in retirement heist the overwhelming majority of people that I worked with were highly ethical professionals who really wanted to protect the benefits promised to employees I know there are millions of americans today receiving pension checks that have benefited from employer provided retirement plans their stories are noticeably missing so let's not burn down the orchard because we found a few bad apples instead let's identify the real causes and change some of the misguided incentives that exist in the system so that we can enhance the retirement financial security for all future retirees thank you I'd like to just start by saying that we at the pension rights center are absolutely delighted to be co-sponsoring this event we're pleased to be able to discuss Ellen's book and the extraordinary impact of her reporting over the years it has had an amazing effect on the lives of so many employees and retirees we're also delighted to once again be able to hear Phyllis's wise words she said so many things were so important I remember that moment when the IBM spokesperson said at the national summit on retirement savings our role is no longer to be responsible for our employees retirement we are merely facilitators it struck me the way it did Phyllis her pointing to the problem of the settler fiduciary distinction right on target it has always been a problem it remains a problem nobody knows quite how to solve it but absolutely on target and your remarks about the pension protection act I think many of us in this room strongly agree with we celebrate your commitment to participants' concerns over the years and I have to say that Don and Michael have both provided incredibly provocative statements but I am also pleased that we were able to co-sponsor this because it gave me an opportunity to go see Tower Heist over the weekend for those of you who don't know it's a caper movie it's great fun it shares a title part of the title with Ellen's book and like Ellen's book it's about the plundering of pensions most important the book I mean the movie like Ellen's book highlights the critical importance of pensions to people if any of you go see this movie you will probably never forget Lester the doorman who learns one year before his retirement that his pension is gone what is so striking about Ellen's reporting over the years and in this book is as I said it's impact on individuals it's helped them helped themselves and it's helped them change the rules for others in the future I'm just going to take one example Janice Winston is here today when her employer announced that it was changing her pension plan she was concerned but she really couldn't figure out what was going on fortunately she had a subscription to the Wall Street Journal and she read an article by Ellen Schultz and it explained what cash balance conversions were and what it would mean to her she learned that she stood to lose almost half the pension that she was counting on getting the rest is history Janice joined with her fellow workers organized they convinced their employer now Verizon to reverse the decision for them and then she went on working with employees and other companies that had also had cash balance conversions to change the law and as all of you know it was changed in 2006 going forward the book is actually already helping people we got a call from a GE retiree we've worked with GE retirees over the years to help them campaign for cost of living adjustments it wasn't too difficult when the plan was tremendously overfunded and now suddenly it's underfunded well when the retiree wrote and said is there any possibility that our the unfunded liability of our executives pension plan might be contributing to this liability I just pointed him to page two of Ellen's book the book highlights so many problems that urgently need to be addressed and I'm just going to mention one that needs to be addressed in the future Chuck Ackerman he was a retired pilot he got it was getting his pension check from Raytheon and as Ellen tells the story he had cancer and one day he was notified that he had been overpaid his pension had been overpaid Chuck of course had no idea that he had been overpaid and he had no money to pay it back it is an absolutely heartbreaking story and it is a situation that needs to be addressed and our hope is that it will be addressed in the not too distant future all sorts of questions have been raised about Ellen's book among them can this really be true but a more fundamental one is isn't the situation hopeless aren't there too many problems doesn't each reform lead to new problems should we forget about the system and just focus on social security not a bad idea but not this year it's not going to happen it's certainly true as we've heard that well-intentioned reforms the accounting reforms the performance for pay reforms you know can have unintended effects and create the incentives that Ellen writes about so eloquently in her book but from our perspective as long as there are journalists like Ellen to expose these problems yes maybe the solutions will come too little too late but they will come and they will come from people like Phyllis and others who care so much about making the system work we've also been asked what are the reforms that can address the problems that Ellen raises and you've heard some of them from Michael there are great many that are needed and I'll just go through a couple I mean obviously reforms relating to the accounting problem that's been suggested you could create a separate bucket on corporate income statements showing increases and decreases in pension assets and liabilities I don't know if that's correct I'm not an accountant but it sounds awfully good to me get it off the books put or keep it on the books but keep it separate so people know what those liabilities are so they don't create these effects certainly the reforms of the recruitment practices the Chuck Ackerman situation very important a whole range of reforms that would level the playing field for employees and the courts critically important reforms that address the coverage exclusions and the evasion of the non-discrimination rules that Ellen talks about reforms as Michael talked about that address the selling of surplus or not and in the case of mergers and acquisitions in either case whatever is done employees are left with a fraction of their the benefits they counted on getting that can be addressed there have been proposals to deal with it it should be dealt with the pension rights center is committed to making the system work better for people for increasing the number of people in plans we think that pension plans are worth preserving and that they can be made to work for both employees and employers I should say that the pension game really isn't over I mean if you look at the latest statistics from the Bureau of Labor Statistics you'll see that if you look at the total non-federal workforce we still have 28% of the workforce covered by pension plans traditional pension plans and 38% or 37% covered by 401k type DC plans there's overlap there are a lot of things about the statistics but it's not over millions and millions millions are still in pension plans we can we can preserve the system we can we can expand and um but of course plan C the ultimate answer isn't just patching up what we have obviously everybody in this room knows that American workers need and deserve something better they need a system that doesn't place all the risks and responsibilities on either the employer or all the risks and responsibilities on the employees workers need secure and adequate lifetime incomes we owe it to them we owe it to our country to work to that end the need is great all you have to do is look at the polls the you know the ones that say that retirement security is the number one financial security interest look at the poll that said that people are more worried about running out of money than death anxiety is high consumer confidence in retirement security is plummeting we need to do something and just very quickly look at the statistics they are shocking half of all retirees who are no longer in the workforce receive less than $16,500 a year that's just above the minimum wage how are they expected to pay their bills on that in this most prosperous country of the world it is amazing even more amazing is that our poverty rate elderly poverty rate of the united states is the fifth highest among 30 industrialized countries it just doesn't make sense even john bogel the 82 year old founder of vanguard was quoted last week is calling the u.s. retirement security system quote is a real mess in need of deep rooted reforms he pointed out that the current average account balance in vanguards 401k plans was only about $26,000 and that rose only to about $60,000 for the median account balance of older people there are lots of ways of getting to a new system it's not rocket science and we've all already made great progress business actuarial retiree groups unions others have all come up with new concepts I think when we last counted there were about 50 proposals for new approaches with more in process of being developed ellen has shown us how we got to where we are today and many of the problems that we're still facing now it's up to us to figure out where we go from here thanks I want to thank the panel and open it up in the time we have left for some questions and I also do want first thank the panel for making a very strong case by the way for maintaining a strong social security and Medicare system in this country and I will just ask ellen having listened to the response if she does want to make any comments in response to anything you've heard couple quick comments one is that the problem with cash balance wasn't necessarily or only that it reduced benefits going forward but there were companies that essentially froze the pensions of only the older people so that's a kind of a disparate treatment only the older people's pensions were frozen some of them for the rest of their career so that was not considered by the courts to be age discrimination but in my mind it's it is really unfair the other is that companies like to characterize these benefits as sort of gratuities it'd be nice if you could pay them in fact pensions retiree health care these are deferred compensation people earned these benefits it was part of the deal you work for us now you get a certain salary in retirement you're going to get these other things so companies that characterize it as you know a gratuity are being a bit disingenuous and finally at the media and congress has been frequently misled by companies and as we've seen many instances of companies hiding what they do mischaracterizing what they do in fact sigma which went up to the supreme court this year and is still active in the federal court level was you know found to have deceived deliberately deceived its employees when it converted its plan so the people who did all of these things the consultants the law firms they're the same ones that are still working away they're the ones that are coming up with the solutions very often they're the ones that have a lot of clout they're the ones who also guide public pension plans in many cases so their involvement is quite extensive and they export these practices to other countries to europe australia so you'll see parallels with all of this in these other countries now i think ellen raises a really good point and really good distinction between what's illegal and what's unfair and i think we see example after example in her book of really things that were legal but not necessarily fair and i think don mentioned for example you could work for 25 years and earn a ritari health benefit and then be told when you turn 65 sorry that's just not going to be available and there's nothing illegal about that but i think a lot of people would think that was pretty unfair i mean phyllis as somebody who's in i guess you're more in charge of the illegal than the unfair but what do you think we can do about the unfair well i think part of what we need i mean that's really the hardest question because we can't always make every potential problem illegal or every potential abuse illegal but i i think the most important thing we can do and honestly i have no idea how to do this is to try to restore this climate of mutual trust between employers and employees so that when a promise is made people can rely on the promise you know it's very easy to promise that i think ritari health is a perfect example at the time that these promises were made no one the companies will tell you ever anticipated that health costs were going to be as bad as they are and that sort of stuff well the fact is as ellen points out this is deferred compensation and so if the retiree if the worker did all of the things that he or she was required to do then the fact that it's inconvenient or the shareholders want more value than the company's willing to give i don't think should absolve them but i really think that the most important thing is to get back to the days where as michael so correctly said there was a mutually beneficial relationship between the employer and the employees and that there was a sense of confidence that a promise once made would be kept we're light years away from that now and i honestly don't know how to get back there just want to see if there's any questions from the audience go ahead yeah go ahead me hi um i'm teo francis i'm i'm sorry teo francis i'm i'm actually a former colleague of ellen's from the wall street journal and we've written some stories together in the past on on some of these topics and i had a question about something that i've heard over over the years and in my current job where i read sec filings pretty much nonstop and a lot of it has to do with executive compensation and that is that a lot of these practices may be no longer all that common and one of the ones i recently just ran across is the director of mckesson corporation currently received many of them anyway eight percent guaranteed interest on on their income deferrals not something that's normally available in in a 401k or or you know or rank and file deferral plans and i'm wondering if if that's i had heard for the last few years that that sort of thing was going by the wayside and that that wasn't that wasn't that big of a problem anymore but i've seen that example that's one i remember i've seen others as well and i'm wondering if you can talk about how common that sort of thing is whether in fact these practices are on the wane or whether whether they're simply being talked about less tail as you know was my colleague in many of these stories and in my mind he knows more than anyone in the media in many other places about executive compensation and he did some groundbreaking analysis that actually helped us figure out the total liabilities for some of this deferred compensation but the what you're asking about is the guaranteed returns that a lot of executives enjoyed and people thought this practice had died out but last time i looked well mark executives received i believe it was 12% guaranteed return on their savings in a year when their employees collectively lost about 20% of their accounts a quarter of them a quarter of the executives we're talking about the top executives had positive returns after the stock market cratered in 2008 so that that means guaranteed return of some kind some of them also just managed to only pick winning funds so that's a another interesting area for research the what i've seen continuing is companies i wanted to ask you tail because you work with the these filings seven days a week are you seeing a continuation of some of these you know currently like the purchasing of life insurance by the banks on their employees or a large amount of pension income which companies also get if they cut retiree health benefits any retiree benefit can generate income even if it's not funded or huge pay packages what are you seeing for the retirement yeah i mean a lot of this is alive and while one of the pay packages i saw recently was san paul mozano is at ibm i think when i went through the proxy because he announced as his impending retirement when i went through the proxy to see what he would be entitled to it ended up totally enough to about 170 million dollars which is certainly one of the largest payouts i've run across what was interesting about that in particular was that you had to do some close reading just because the the table that normally shows in a proxy how much somebody will get if they leave under various scenarios actually mixed lump sum amounts that he would be entitled to with annual payments that he would be entitled to and you would have to read the footnotes to realize that these were sort of apples and oranges you mentioned corporate own life insurance banks i think are still using that to to great effect you don't need to look any further than some of the draft legislation for the Volcker rule which is intended to protect taxpayers against the undue risky bets by by financial companies there's actually in some of the drafts I've seen there's a carve out for bully portfolios for bank owned life insurance portfolios so that they would not be treated as as these risks as a hedge fund for example lifetime retiree medical benefits I'm still seeing a fair amount of that didn't actually pays its top executives up to $750,000 a year in additional medical benefits beyond what the health plan pays for and $25,000 a year for life after they retire Raytheon also has has I'm sorry Raytheon was an example of something entirely different but anyway so yes many of these many of these various practices continue a pace yeah my name is Bill Jones and I'm the founder of the Association of Beltel Retirees and I read Ellen's book with great interest depressing but great interest my former employer Verizon was documented on a number of things there I'm working on something new a new scheme maybe Ellen would be interested in this one the company spun off the directory operations in 2006 and not only did they send the employees without their consent they also saw fit to send about 3,000 retirees people who had been retired as many as 10 years didn't even know about it until I got their pension check with a different name on it never heard of the company called IDARC which by the way not only did they send 2,500 to 3,000 retirees they sent along nine billion dollars worth of debt to help them along as a new fledgling company well this under nourished thing has already gone bankrupt the first time it's now called super media and my association finally decided we couldn't ignore this and we helped the retirees file suit against Verizon and then IDARC that thing is lumbering through the courts right now but beyond that it really scared us because this is something I think we're going to see more often where companies will get rid of an unprofitable piece of its business by spinning it and lord knows what they may send to the spin because unlike a trend a sale of a piece of a business where you have pushback from the buyer no buyer of IDARC would have taken the deal with 2500 retirees and all their benefits and nine billion dollars worth of debt it never would have happened but when the company was able to create the spin send some people there highly paid to operate it and then dump all this stuff on them that's what happens I see that this could be something that would be growing across the country not only in our company where they may start spinning off some other unprofitable pieces so we're hoping for the best with the in the courts you can imagine what we're up against they have several law firms fighting us and it's it's worth a lot to them so they're going to go to the mat for this one but I'd love to have Ellen take this one on but and I thank her for the work she did and we're running out of time I think there were some questions in the back but I haven't gotten far enough in your book to discussion of payments of lump sum severance benefits and I'm wondering how this is being done and how the companies have gotten around the restrictions under ERISA how they've gotten around the restrictions on payments of severance benefits from pension plans yeah that's there's a lot of discussion of that in some of the company materials that I've obtained over the years they don't characterize it as severance they will call it early out or incentive to retire things like that and that does get them around the the prohibition against using pension assets for severance but I forgot to mention speaking earlier that the other thing that happens when they pay out these pensions is they when they give out lump sums several wonderful things for the company happen I mean companies say they give out lump sums because employees want to manage their own pension money but in fact giving a lump sum transfers all of the of course investment risk interest rate risk longevity risk to the retirees so companies complain about their older you know burdens that they've already transferred that risk people can live forever it's not going to hurt the company the other thing they did was when in many companies they gave out lump sums they would give out less than the value a person had actually earned so they would short change people now this is illegal but there's a loophole that makes it legal that I won't trouble you with so companies did save billions by actually sending out lump sums for the pension payments I want to I know there's a number more questions here but we're running over time and I want to be mindful people's time so please come up some of the panel members will still stay around and answer some of your questions I want to thank this panel for it's been a great conversation and thank you Ellen for a very good book