Retirement Inequality in America

When we think of income inequality in North America and Europe, we often associate the massive differential between executive salaries, particularly those at the top of the corporate heap, and the relatively tiny compensation that is paid to an average worker as a guide to the degree of income inequality in our society today.  What is rarely considered is how income will look after retirement for both groups.  Fortunately, a recent study by the Center for Effective Government and the Institute for Policy Studies examines the vast differential in retirement benefits between the two groups.

Let's start with a few facts:

1.) The 100 biggest retirement funds set aside for CEOs are worth a total of $4.9 billion, equal to the retirement savings of 50 million American families (which represents 41 percent of all American families) or 116 million Americans.  Here is a table showing the ten largest CEO retirement funds:

2.) The largest retirement fund in the Fortune 500 is held by David Novak, CEO/Executive Chairman of YUM Brands, the owner of Taco Bell, Pizza Hut and KFC and is worth $234 million.   This will generate a monthly income cheque of $1.3 million upon his retirement.   It is key to note that hundreds of thousands of his employees have no company-sponsored retirement plans.  Those 8828 employees that do have account balances in a 401(k) have an average value of $70,167 and will generate $395 per month in retirement income.  

3.) On average, the value of these CEO retirement plans are worth more than $49.3 million, a size that is large enough to generate a monthly income cheque of $277,686, equivalent to roughly five times the annual income of an American family unit.

4.) Tax deferment works in the favour of these CEOs; Fortune 500 CEOs have saved $78 million on their 2014 tax bills alone by putting an additional $197 million into these tax-deferred compensation accounts than they could have if they were under the same tax regulations as the "sweaty masses".  Here is a table showing the ten largest CEO Deferred Compensation Accounts:

In 2014, the largest deferred compensation contribution belonged to Glenn Renwick, CEO of the Progressive Corporation, who invested $26.2 million in his tax-deferred compensation account which saved him more than $10 million in federal taxes.

        

5.) Only 18 percent of private sector workers had a defined benefit pension, a drop of nearly 50 percent from the 35 percent level seen in 1990.  On the other side of the coin, 52 percent of Fortune 500 CEOs have a company-sponsored retirement plan.  As well, nearly 75 percent of Fortune 500 companies have set up tax-deferred compensation plans for their executives that are similar to 401(k) plans that ordinary workers have access to.  The biggest difference is that there is a limit to how much pre-tax income ordinary workers can contribute to their 401(k)s (workers 50 years of age and older can contribute $24,000 annually); in the case of executive compensation plans, there is no limit which allows them to shelter unlimited amounts in these plans tax-free.

With this information in mind, I find it particularly galling that many American corporations have minimized their pension liabilities by converting defined benefit pension plans to defined contribution plans.  By doing this, companies shield themselves and it is the working class who bears the burden of saving sufficient cash to provide themselves with a financially secure retirement.  While defined benefit plans were the norm in the 1980s and 1990s, by 2011, three times as many private section workers had a defined contribution pension plan when compared to those that had a traditional defined benefit pension plan as show on this graphic:

In closing, let's summarize this posting by looking at the pension status and pension funding levels of the ten corporations with the largest CEO retirement accounts that we observed on the first table:

With millions of baby boomers wondering how they are going to make ends meet after they retire (if indeed they can afford to retire), it's comforting to know that a few hundred Americans are going to have no retirement worries whatsoever.