Labor Day marks the 35th anniversary of a law hailed by its principal sponsor Senator Jacob Javits as “the greatest development in the life of the American worker since Social Security.” Thanks to the Employee Retirement Income Security Act of 1974, millions of retirees are receiving the secure lifetime pensions that are making it possible for them to live comfortably in retirement.
When ERISA passed, hopes were high that by now the private pension system would have expanded to cover even more workers and that benefits would have been steadily improved.
Instead, fewer people are covered by pension plans, and, in many cases, their benefits have been frozen or even cut back. An increasing number of workers are being told that they will have to rely on whatever they are able to accumulate in retirement savings plans – amounts that for most are likely to be neither secure nor sufficient to provide them with an adequate supplement to their Social Security payments. Their prospects for a comfortable retirement appear bleak.
Many reasons have been given for the shift away from pensions, but a new one has been highlighted by BusinessWeek’s Management IQ blog.
According to the blog, a new study has found that companies in the S&P 500 are putting more money toward paying their top executives than they are putting toward funding employee pensions – even though their pension plans are underfunded. While these companies pay executives a combined $44.5 billion, they leave their employees open to the risk of not receiving their full pension benefit if the company terminates its pension plan.
The blog goes on to note that 40 companies, including Sprint Nextel, the Chubb Group of Insurance Companies, and CVS, have put “more than five times their pension contributions toward stock grants, though all but two of them have plans that owe more than their current assets. And some companies with pension shortfalls put nothing at all into those plans last year, but still gave out stock compensation.”
At least the executives of these companies will have something to celebrate on Labor Day.
Read a statement made by the U.S. Department of Labor as it marks the 35th anniversary of ERISA.