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[Commentary] © 2003 Philip Hyde, The Timesizing Wire, Box 622 Cambridge MA 02143 USA (617) 623-8080
Eroding Retirement, April/2003
4/23/2003 eroding retirement, as documented in the Wall Street Journal (WSJ) & NY Times -
4/18/2003 eroding retirement for employees, secure retirement for senior executives -
- How to protect yourself from your parents - Strapped retirees turn to kids for financial aid..., by Michelle Higgins, WSJ, D1.
After spending years saving for a comfortable retirement, many people are running into a cost they never planned for - their parent's retirement. In the latest sign of tough economic times [and a mean spirit among taxpayers and voters!], a growing number of families are undergoing a role reversal. Instead of getting financial help from their parents, children are having to give them regular handouts. Some are shelling out tens of thousands of dollars to cover basic costs, from medical and credit-card bills to vacation and retirement-home expenses....
Role reversal, blowout, WSJ, D1.
Sure, your parents used to house you and buy your school magazines. Here are some ways you can help them without hurting yourself.
[The richest country in the world? Hah! No nation that's become as mean-spirited as the USA under the "conservative" talkshow hosts and administration Republicans is rich. It's a wasteland of wrecked lives.]
- Become their landlord
- Deduct them from your taxes
- Buy stuff from them ....
- Why it pays to delay: Too many retirees start collecting social security early, by Jonathan Clements, WSJ, D1.
[The insulated and isolated wealth-oriented scribblers at the Wall Street Journal are apparently under the illusion that people have a choice.]
Maybe wisdom doesn't come with age. In recent years, almost 70% of retirees took Social Security before age 65, thus accepting a permanent reduction in their monthly benefits.
[But getting some of what they put into it back, up to three years earlier, at an age when they could keel over at any moment.]
But this doesn't make any sense at all, especially with folks living longer and longer.
[Unless, as mentioned in the article right above (which maybe Jonathan Clements should read), "tough economic times" leave you with absolutely no choice. Has Clements heard much about a preference for hiring older people lately? Has he heard of any reverse agism in the last few years? Clements makes all kinds of noises about how mysterious it is that people apply for their Social Security benefits as early as possible -]
...Applying for benefits at 62 meant accepting a hefty 20% cut in months benefits.... By 1970, 40.3% of men and 57.3% of women claiming SS were under age 65.... Given their greater life expectancy..\..why did women jump at the chance to take their SS benefits early? It's hard to fathom.... That isn't the only mystery, however. It turns out that the percentage of retirees claiming benefits early has climbed sharply since 1970. In 2001, [it was] 65.6% of men and 69.9% of women. Yet logic suggests that these percentages should be falling, not rising [because] over this 31-year stretch, the average life expectancy for 65-year-old men climbed [we'd say crawled up] 2.7 years [and for women] 1.1 years.
[Big deal. This guy obviously hasn't been reading the newspapers in the last few years either, because he seems to have heard nothing about deteriorating company pension plans, which used to give people more choice. Also, there's all the talk about SS going bankrupt, and all the irresponsibility among politicians today. People figure, "I better take as much as I can as soon as I can before these thieves bankrupt the whole system!" Plus, as Clements quotes someone saying later -]
...Says Henry Hebeler...founder of a website devoted to retirement issues (*AnalyzeNow.com), "...It's the only income they have that's adjusted every year for inflation."
[What it boils down to is a huge leap of faith -]
...Thomas Walsh, a research fellow at New York's TIAA-CREF Institute...conclu[des]: It is worth delaying until age 65½ if you believe you will live until at least age 84....
[And who the hell believes that with any confidence? And even if you believe it, it's NOW that you're relatively healthy and can get around and enjoy things. God knows WHAT shape you'll be in by the time you're 84 - if you're lucky (or unlucky?!) enough to last that long! Our conclusion: Clements is an idiot. The WSJ should get somebody else, somebody who's been there, to write retirement advice - but they probably wouldn't hire somebody that old. Here's more of Clements' cluelessness -]
If your finances are shaky, however, you probably shouldn't be retiring at all.
[As if everyone has that choice in this economy where CEOs go after you with pink slips just before you reach retirement age so they don't have the expense of your pension. Clements talks like an ignoramus. And so does Hebeler -]
"You've got a 50% chance of living longer than average.... If you want to live a drab, drab life, try to live those later years on reduced Social Security benefits."
[Well, duh, try to live an exciting active, non-drab life when you're confined to a wheelchair or a bed or a nursing home! Have these shmucks visited a nursing home lately??? It's one thing to be 94 and John Kenneth Galbraith in his lovely home on Francis Street in Cambridge MA, or 98 and Ernst Mayr in his very nice retirement community in Lexington MA, but go out Mass. Ave to the home just this side of TJ's and check out some of the live wires you see there, or take a left at the previous light and scope Park Avenue Rehab.]
4/17/2003 eroding retirement -
- AMR pension filing is met with outrage, continuation headline (from B1), WSJ, B3.
[initial headline -]
Livid over executive pay, AMR unions may balk at cuts - 'Knowledge of this outrage would probably have doomed any agreement,' one union leader says, by Scott McCartney, WSJ, B1.
The disclosure yesterday of special payments for top executives at AMR Corp's American Airlines touched off a firestorm among employees and threatened to send the world's largest airline into federal bankruptcy court after all.
[Top executives can get pretty insulated, isolated = clueless, though there are exceptions.]
Retention bonuses and creation of a trust to protect executive pensions were disclosed in a filing AMR made Tuesday, just as 3 unions were wrapping up voting on whether to accept deep cuts in pay and benefits.
[Contrast the philosophy at Lincoln Electric, one of the most successful (and timesizing) American rustbelt companies, "Everyone sacrifices together, starting at the top."]
Workers now say they were betrayed.
[How could they do that? They're out of touch. They're insulated and isolated by their money and their circle of friends and relatives and business contacts. They never talk to anybody who doesn't Yes them up and down. Our economy has NO FEEDBACK system. Here's the kind of ridiculosity that happens all the time -]
- The Transport Workers Union, for one, threatened to refuse to sign a new contract that the company [i.e., the top executives] says it needs to avoid filing for bankruptcy-court protection. "I believe if our members had known this, it might have changed the outcome," said Jim Little, head of the union's air transport division. As it was, only 53% of TWU members voted for contract concessions.
- On the ramp at O'Hare International Airport in Chicago, crew chief Joseph Szubryt, who recently made buttons saying, "For Your Future, Vote Yes," was dismayed. "This feels like a stab in the back," he said yesterday. "On the day we voted for all this stuff, giving up $10,000 a year when we only make $45-50,000, they disclose this? How the heck could these guys do that?"
Most troubling, workers said, was that AMR didn't disclose the executive benefits until it filed its annual report on Tuesday with teh SEC. The filing had been delayed while workers considered pay cuts, then was made within hours of the close of voting. "Knowledge of this outrage would probably have doomed any agreement, and rightly so," said John Ward, president of the Assoc. of Professional Flight Attendants.
- Amid cost cutting and enormous losses, AMR's board last year agreed to spend an undisclosed cash sum to create a trust to protect supplemental pension benefits for 45 senior American Airlines executives. In addtition, the board last year offered "retention bonuses" - equal to twice base salary - to American's top 6 executives if they stay with the troubled airline through January 2005.
- Meanwhile, the company [let's lay it on the line = these top 6 executives and their 45-6=39 fellow senior executives] asked workers to swallow pay cuts of between 15.6% and 23% starting May 1, and to accept cuts in their own benefits and looser work rules.
[In other words, these top executives are hurting their own markets more, not less, and delaying the recovery longer, not shorter, by concentrating more spending power at unspendably astronomical levels in their own few hands. They are too stupid to realize and act in accordance with their own self-interest. They are keeping the airline and the economy down.]
Union leaders were also infuriated by a statement made by American Airlines spokesman Bruce Hicks and reported in The Wall Street Journal yesterday. Mr. Hicks said unions had been told of the executive compensation deals before ratification voting, as part of information given under confidentiality agreements.
[So American Airlines top executives were not even bargaining in good faith. They were lying. Re "unions had been told about the executive deals"...]
"Nothing could be further from the truth," said John Darrah, president of the pilots union at American, who found himself under attack from members when they thought he knew about the deals but didn't tell them. American's other two unions said they hadn't heard a word about the [executives'-only] benefits. "Any suggestion by the company [ie: the six, double-salary top executives] that we were informed of this during the talks, or had any knowledge of it prior to opening The Wall Street Journal today, is simply a lie," said Mr. Ward of the flight attendants union.
Mr. Hicks backed off his earlier comments. "I had misunderstood," he said. Union leaders were [only] briefed on the company's need to retain executives, but not on specifics, he said yesterday.
[Why would they want to retain such people when there are hundreds of competent executives out there looking for work? Check out the NYT Magazine article on the white-collar unemployed this Sunday, 4/12-14/2003 #2. Betcha high-tech superstar Jeff Einstein would jump at a top job at American Airlines for HALF the base salary of current execs. How do we know? Because due to the cumulatively destructive effects of current executives' basic response to technology in particular and trouble in general, namely downsizing, Jeff and many other unexpectedly downsized executives could find NO OTHER ALTERNATIVE than a $10/hr job at The Gap. Let's see. That's $10x40x52= $20,800 a year, while these company-destroying jackasses are getting $$$millions. And betcha Jeff would have a LOT better skills in employee relations, considering what he's been through.]
Union leaders demanded that executives give up the bonuses and the pension trust. But that may not be easily done. Under terms of the trust, it appears that each of the 45 executives may individually have to relinquish rights to the funds before AMR could get the money back.
Managers and top executives [at American Air admittedly] are giving up $100m of the $1.8B in [employee] savings. But the disclosure of [huge] extra benefits undermined those givebacks.
A senior executive at American said the airline last year faced losing a significant number of retirement-eligible operations executives key to day-to-day operations.
[Just one little question = in this economy, WHERE THEY GONNA GO?!?]
The executives were concerned that their pension benefits weren't protected [welcome to the real world!] and realized they could leave at that time and take their pensions in a lump sum, before the danger of imminent bankruptcy.
[Fine, GO. There are PLENTY of excellent replacements.]
As a result, the [wealthy and insulated?!] board decided to fund the pension trust. "We needed these guys to try to save the company," the senior [executive] said.
[Like you don't need your unionized employees?]
American's 3 unions have yet to sign the concessionary contracts and said they are consulting lawyers and studying their options. "The credibility of the company [i.e., top managment?] is at stake. This was supposed to be a shared sacrifice," said the transport worker union's Mr. Little.
[We repeat Lincoln Electric's policy, "Everyone sacrifices together, starting at the top," where it's so much less of a sacrifice because, especially now that the ratio of regular to top executive pay has climbed to 500 to one, it's sooo much more.]
AMR, based in Fort Worth, Texas, said it set up the cash retention program for executives in March 2002 because it was having trouble hanging onto top executives amid the airline industry depression.
[OK, "amid" the admitted "airline industry depression," exactly where were these executives going to go?]
The program will pay six top executives twice their base salaries and a seventh executive 1.5 times base salary for staying with the company.
[Isn't it amazing how easily simple-minded, self-indulgent, OK, whining senior executives can convince themselves that it is in the interests of a nearly bankrupt company to pay them more money?!!!!!!!! In other words, that it will help a company with too little money to waste even more of it?! What bankrupt company really needs parasitic bloodsucking physicians-cum-funeral directors like these in its employ?]
Half of each retention bonus will be paid Jan. 30, 2004, and the rest on Jan. 31, 2005. In a message to employees yesterday, American said it funded the supplemental pension trust "in an attempt to avoid the loss of additional senior management."
[With senior management like this, who needs competition, who needs SARS, who needs terrorists to bring the airlines down?]
The Oct. 14 creation of the pension trust, to be run by a committee of 4 executives, protected some supplemental pension income for the 45 executives....
[They just don't get it. Our recommendation to the unions. Don't sign. Maybe in bankruptcy it will be easier to strip these top morons of their insulation and get them back in the feedback loop. If not, they're useless anyway.]
4/13/2003 eroding retirement -
- A study of corporate pension funds shows many assumed outsized gains, by Mary Walsh, NYT, C1.
The first comprehensive examination of the pension funds of the nation's biggest corporations shows that nearly half made assumptions about their investment returns for 2002 that would be deemed too aggressive by federal regulators, starting this year.... The optimistic assumptions about returns on fund investments translated into billions of dollars for corporate America'ss collective bottom line in 2002, according to the study, by the actuarial firm of Milliman USA..\..
In fact...almost all the pension funds examined lost money last year. The companies that used the highest estimates included Northwest Airlines, General Motors and Honeywell International.... "I've had more questions on the assumed rate of return in the last 6 months than I had for 15 years before that," said John Ehrhardt, a consulting actuary and principal of Milliman and author of the new study, [which] showed that America's biggest companies last year assumed an average rate of return of 8.92% for their pension investments....
- Of the 100 companies examined, 45 used an annual rate of return of more than 9%, the proposed standard for this year.
[Who in hell proposed that?!]
- 8 of companies assumed that their pension funds would have returns of 10% or more.
[Headline - "A wave of brain rot sweeps America's CEOs.']
- Pension shortfalls force companies to make choices - At an increasing rate, cash for growth is used to boost sagging funds, by Cassell Bryan-Low, WSJ, C3.
Companies in the S&P's 500-stock index poured $46B into their pension plans last year, 3 times more than the year earlier, according to a new study by Credit Suisse First Boston [CSFB].
[This is the first story we've seen that indicates companies are doing anything but looting and dumping their pension funds.]
Thanks to continuing stock-market declines that have shrunk pension assets, S&P-500 companies could spend as much again this year to top up pension plans, which provide guaranteed benefits to retired workers, according to David Zion, the report's author.... According to the CSFB study, which looks at the 360 S&P-500 companies that have pension plans [so 140, 28% DON'T?!], the $46B of 2002 contributions represented 6% of the total cashflow from operations. For 10 companies, the amount spent represented 40% or more of operating cashflow....
Among companies that experienced the biggest dollar drops in the funding of their plans were
- At the high end, pharmaceuticals company Wyeth poured $910m into its pension plan, or almost 5 times its $186m cashflow from operations.
- Insurer St. Paul Cos. contributed $158m to its plan, while operating cashflow was $129m....
each of which saw declines of more than $10B..\.. When companies are obligated by federal pension rules to make contributions, they are allowed to do so incrementally, over 3-5 years. But topping up plans voluntarily is attractive for a variety of reasons, including tax ones....
- car makers Ford Motor Co.
- and GM,
- as well as Verizon Communications Inc., the nation's largest local-phone company,
4/05/2003 eroding retirement -
- A little less certain of retiring in comfort, by Jeff Sommer, NYT, 3:6.
Most Americans remain confident that they will be able to retire comfortably,
[oh yeah? what highly selective sample have they been polling?]
although there are signs of heightened anxiety after 3 years of stock market losses, according to an annual survey by the Employee Benefit Research Institute...a NP group in DC [which] found that 66% of workers said they would have enough money for retirement, compared with 70% last year. The number of workers who said they were not at all confident of having enough retirement money rose to 16%, from 10% in 2002. Among workers who will be at least 45 years old this year, 24% said they planned to postponed their retirement, an increase of 9% from last year....
The telephone survey, the 13th of its type to have been conducted by the Institute, was based on a random sampling of 1,000 Americans aged 25 and older. It was conducted in January.
4/4/2003 eroding retirement -
- Pension shift at Northwest raises fears - Airline seeks to bolster fund with rare tactic, by Mary Walsh, NYT, C1.
...shor[ing] up its pension funds with the stock of a subsidiary airline, more stock than the law generally allows....
4/03/2003 eroding retirement -
- Goodyear Tire & Rubber plans heavy cost cuts after it posted a record loss, by Timothy Aeppel, WSJ, A6.
...CEO Robert Keegan said previous moves - such as laying off 900 workers at a plant in Tennessee and 700 mostly white-collar workers at its base in Akron, Ohio, axing employer contributions to 401k retirement plans, and halting dividend payments - are just a "first phase" in the cost cutting. "We have to take our cost structure down and attack it in a way we historically haven't done in North America," he said....
[Too bad he's also attacking his own best markets = his own employees, who are his own and his customers' customers. The crude narrow interests and near-sightedness of many of today's CEOs is still thinking, when they think of it at all, that the consumer base is infinite and that nothing "little them" can do to it will harm it. It's like fishermen, or polluters, think of the oceans - "Oh, they're infinite. Fish stocks will never give out. Pollutants will never build up." Or in the CEOs' case, "The consumer base will never give out." Ri-i-ight. Fasten your seatbelts for the Mother of All Depressions.]
- [and it's not only here -]
Protest strike in France interrupts travel - Workers are upset at the government's intentions to revamp their pension plans, by John Tagliabue, NYT, A6.
- [If you've ever wondered how it is that the centripetal or concentrating or consolidating forces on the national income gradually, imperceptibly, get stronger and stronger during peacetime until they completely overwhelm the centrifugal forces and result in unspendable 'black hole' levels in the concentration of spending power (thus strangling the markets away from their own investments!), here's an interesting little example, straight from the heart (WSJ) of the "death star" (WS) itself -]
As workers face pension cuts, executives get rescued, by Theo Francis & Ellen Schultz, WSJ, C1.
At a time when pension plans of many companies are increasingly in peril, employers have been taking steps to protect the jumbo pensions promised to top executives.
These aren't the types of executive trusts that came into the spotlight when Enron Corp. went over a cliff. Enron, like many companies, had set up "rabbi" trusts [anti-semitism?] to fund deferred-compensation benefits for top executives. Such trusts are technically still company property, and therefore subject to the claims of creditors.
- Delta Air Lines disclosed in filing last week that it had set up special retirement trusts last year to ensure pension payments to 33 of its executives in the face of severe turbulence for the industry. ...Delta employees...face pension cuts as the carrier seeks to lower its costs....
- A search of government filings reveals that many companies have made similar disclosures, mostly within the past year, including Altria Group Inc. (formerly Philip Morris),
- LTV Corp.,
[declared bankruptcy back in 12/30/2000 #1, apparently sucked dry by its own top executives.]
- UAL Corp.,
- and Abbott Laboratories.
Rather, these less-well-known trusts set up by Delta and others involve arrangements by which the company actually turns the money over to the executives, or to special trusts set up in their names. Once paid out, the money is gone, unavailable to the company in the event of bankruptcy or insolvency.
The practice can be [even] more expensive than simply paying the pensions when they come due. That is because many companies, including Delta and Abbott Labs, "gross up" the payment to make up for some or all of the additional taxes that executives incur by receiving their money early....
[Are we furious yet? Watch that blood pressure!]
For earlier retirement stories, click on the desired date -March, 2003.
June, 2002 & previous.
For more details, see our laypersons' guide Timesizing, Not Downsizing, which is available online from *Amazon.com and at bookstores in Harvard and Porter Squares, Cambridge, Mass.
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