Retirement Heist

Xerox

Y

Yarter, Chuck

Z

Zellers, Mark

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Footnotes

1

This court handles disputes between contractors and the government.

2

The question of who owns the surplus assets has provoked numerous lawsuits, but the cases have by and large been resolved in employers’ favor. One of the most significant was Hughes Aircraft Co. v. Jacobson (1999), in which the Supreme Court ruled that employers can use surplus assets even if employees contributed to the plan.

3

Creditors challenged the payments in bankruptcy court, which halted the payouts to the executives. The case dragged on for years, and in 2005 the bankruptcy court ruled that the pension payments “constituted a fraudulent transfer,” and said the pension money should have gone to pay the creditors.

4

When later asked to comment about this piece of advice, a spokesman for Watson Wyatt maintained that Brown was actually advocating clear communication to plan participants. “The term ‘magic words’ was a lawyer’s reference to the triggering words in the [disclosure] statute,” he said.

5

A number of companies “grandfathered” older workers under the prior plan. But these transition periods typically lasted only five years, merely postponing, and ultimately increasing, the wear-away.

6

Employers began using unisex mortality tables in the 1980s, which has been disadvantageous for women taking lump sums rather than annuities.

7

In recent years, some employers have argued that their workers are actually dying younger; this would enable employers to contribute less to their pension plans. Lawmakers bought it: The Pension Protection Act of 2006 allows large companies to use their own mortality assumptions when they figure out how much money to contribute to pension plans. Lower life spans mean lower contributions.

8

The rules, developed by the Financial Accounting Standards Board (FASB), went into effect for large companies in 1987 and a bit later for small employers.

9

In 2003, the Securities and Exchange Commission began investigating whether companies were using retiree plans to manage earnings. It sent subpoenas to Boeing, Delphi, Ford Motor, General Motors, Navistar International, and Northwest Airlines, asking the companies whether they had used pension and health-benefit funds to adjust their earnings in recent years. The companies said “Of course not,” and the investigation fizzled out. The SEC was focusing on discount rates and other assumptions used to calculate liabilities, not the use of pension cuts and other maneuvers.

10

This explains why COBRA costs can be so high: Employers can segregate former employees—regardless of their age—into the retirees’ risk pool.