A Tale of Two Retirements: The Great Divide Between CEOs and Everyone Else

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends most of her time in Asia researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as writes occasional travel pieces for The National.

The Institute for Policy Studies (IPS) earlier this month released its second annual report on the CEO-worker retirement benefit gap. A Tale of Two Retirements analyzes how CEOs are provided with colossal nest eggs– monthly retirement checks ranging from more than $100,000 to more than $1,000,000– while at the same time many of their companies pursue strategies that erode retirement security for their employees.

The CEO-worker retirement benefit gap has become such a chasm, not as the result of executives working harder or investing more wisely, but as “yet one more example of rule-rigging in favor of the 1%,” according to the IPS.

Benefits Go Disproportionately to Those at the Top

As an aside, I should mention another item in yesterday’s news: the phenomenon that the IPS report discusses is not just confined to the US, nor is it limited solely to CEO retirement benefits. The Financial Times  reported in ‘Negligible’ link found between executive pay and performance  on a similar disconnect in Britain, this documented in a Lancaster University Management School study. From the pink paper:

The correlation between high executive pay and good performance is “negligible”, a new academic study has found, providing reformers with fresh evidence that a shake-up of Britain’s corporate remuneration systems is overdue.

Although big company bosses enjoyed pay rises of more than 80 per cent in a decade, performance as measured by economic returns on invested capital was less than 1 per cent over the period, the paper by Lancaster University Management School says.

“Our findings suggest a material disconnect between pay and fundamental value generation for, and returns to, capital providers,” the authors of the report said.

In a study of more than a decade of data on the pay and performance of Britain’s 350 biggest listed companies, Weijia Li and Steven Young found that remuneration had increased 82 per cent in real terms over the 11 years to 2014.

Much of the increase was the result of performance-based pay. But, the report’s authors say, the metrics used to assess performance — such as total shareholder return and earnings per share growth — are unsophisticated and short-termist, acting against the interests of long-term investors. The research found that the median economic return on invested capital, a preferable measure, was less than 1 per cent over the same period.

CEO Retirement Benefits Compared to Ordinary Workers

As the IPS study summarizes:

The sum of the 100 largest CEO company retirement funds — $4.7 billion — is equal to the entire retirement account savings of the 41 percent of American families that have the least amount of retirement savings (this represents 50 million families and 116 million people).

On average, the CEOs’ nest eggs are worth nearly $47.5 million. If converted to an annuity at age 65, this would be enough to generate a $253,088 monthly retirement check for the rest of their lives. Contrast that with the situation for ordinary workers. For those lucky enough to have a 401(k) plan, the median balance at the end of 2013 was just $18,433, enough for a monthly retirement check of just $101 (IPS report, p. 5)

Over the last several decades, the trend has been for retirement plans for ordinary US workers to shift from defined benefit to defined contribution plans (for those workers lucky enough to have any retirement plan). The IPS study notes that according to  the Economic Policy Institute, the share of prime working age families covered by a defined benefit pension plan plummeted from 41 percent in 1989 to 21 percent in 2013.  Even worse, among the baby boomer generation,  39 percent of workers aged 56-61 years old have no employer-sponsored retirement plan whatsoever, leaving them dependent on Social Security, which pays out average benefits of $1,239 per month per beneficiary (IPS report p. 5).

The IPS study discusses some of the many rules and regulations that disadvantage ordinary workers, compared to those that apply to CEOs (and by extension other privileged members of the C-suite– although this aspect is not discussed in the IPS report) in three key areas: pension rules, compensation rules, and tax rules.

In the area of pension rules, according to the IPS:

Ordinary workers face strict limits on how much pre-tax income they can invest each year in tax-deferred plans like 401(k)s. But most Fortune 500 firms set up special unlimited tax-deferred compensation accounts for their executives where their money can grow, tax-free, until they retire and withdraw it.

The IPS notes that in 2015 alone, Fortune 500 CEOs saved $92 million on their taxes by parking  $238 million more in these tax-deferred accounts, than they would have been able to do if their retirement accounts were subject to the same caps that limit contributions by ordinary workers.

As for compensation rules, the IPS notes:

Since more than half of executive compensation is now tied to the company’s stock price, CEOs have a powerful personal incentive for slashing worker retirement benefits in order to boost the short-term bottom line. Every dollar not spent on employee retirement security is money in the CEO’s pocket.

And finally, in the area of tax rules, performance-based tax systems have a pernicious effect:

Tax rules: CEO retirement funds are growing because CEO pay is growing and much of it is stashed in executive tax-deferred retirement accounts. Our tax code encourages excessive CEO pay by allowing corporations to deduct unlimited amounts of executive compensation off their federal income taxes, as long as it is “performance-based.” The more corporations pay their CEO, the less they owe in taxes. The rest of us make up the difference.

The IPS report is not so long– only 21 pages– and I encourage interested readers to look at it in full– especially the sections of the history of the retirement divide (IPS 10-13).  This describes the legal and regulatory changes that allowed many corporations, led by rapacious CEOs and their enablers, to erode the pension and other benefits of ordinary workers while systematically feathering their own nests.  The huge spike in unequal retirement benefit treatment is by no means a natural phenomenon, but the logical consequence of a systematic campaign to shift wealth upward.

What Is to Be Done

The IPS report describes specific policies and rules and regulations in various areas, e.g., including tax law, Social Security and pension, labour, and procurement provisions– that disproportionately reward company executives. Beginning in earnest during the Reagan administration, these laws have been changed to inordinately benefit those at the top of the corporate economic pyramid.

The report recommends eight specific targeted policy changes (although admittedly, some o these are rather vague) that could rein in and perhaps reverse the accumulation of retirement assets for the topmost earners, and expand the funds available to improve retirement security for everyone else. These policy changes fall into four categories for reform: tax , social security and pension,  labor, and procurement.

In the tax reform area, the IPS makes three recommendations, which are the most detailed of the eight reform proposals mentioned in this study. It’s important to keep such ideas front and center, as any Trump tax reform plan is unlikely to focus on retirement inequality. First, the IPS recommends that corporate executives should be subject to the same contribution caps that apply to the workers they employ. Currently,  older workers may contribute  a maximum of $24,000 in their corporate 401(k) accounts while younger workers are limited to no more than  $18,000. Tax-deferred CEO compensation should be subject to the same limits.

Second,  corporations that have frozen their worker pensions, closed existing plans to new hires, or maintain employee underfunded pension accounts (e.g., not funded at the 90 percent level), should not be allowed to deduct executive pension and retirement costs from their federal tax liabilities. To allow otherwise– as at present– means taxpayers subsidize lavish executive retirement packages for employers who have eschewed providing for the retirement security of their employees.

And third, one reason executive pay has further ballooned over roughly the last two decades is due to the 1993 tax reform that capped the tax deductibility of executive compensation at $1 million but allowed corporations to deduct unlimited amounts of stock options and other “performance-based” pay amounts from their federal income tax liabilities. Far from reining in executive pay, the reform merely changed the form in which it was awarded.  The IPS endorses the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, which would cap the tax deductibility of compensation at $1 million for every employee, executive or otherwise,  regardless of position, as well as eliminate the “performance pay” exemption.

The report closes with some vague recommendations, calling for strengthening Social Security, safeguarding public pensions, and supporting universal retirement funds. I should caution there’s much snake oil being peddled around the issue of Social Security reform and strengthening retirement security, and it is important that one maintains a degree of skepticism whenever these issues are discussed– whatever the origin of the reform proposals.

The report also calls for strengthening labor unions, and finally, closes, with another concrete proposal, to prohibit large government contractors from providing executives with retirement benefits that exceed those received by former Presidents of the United States– which IPS estimates at roughly $200,000 per year.

These proposals are far from a panacea for reversing the massive shift of retirement assets from ordinary workers to CEOs. But at least they provide a starting point for the tough work of further political organizing.

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  1. Daniel

    My employer, a school outside the US that is registered in the US as a non-profit, has a 403 plan. It is going to stop making employer contributions to the plan for teachers at the end of 2016. But it will continue to make contributions to American administrators, all of whom have salaries well into the six digits. Is this double standard right?

  2. Ignacio

    “CEOs have a powerful personal incentive for slashing worker retirement benefits in order to boost the short-term bottom line. Every dollar not spent on employee retirement security is money in the CEO’s pocket”

    So the tax system is designed to increase inequality. Sounds great. Joseph Stiglitz should have a word on this. (I have just started reading his book on inequality).

    Good job Jerri-Lynn!

    1. PKMKII

      So the tax system is designed to increase inequality.

      Exactly. Of course, the neoliberal powers that be depict this as being the result of the “free market,” not government policy, and any attempt to adjust the tax code to encourage other results is at best interference and at worst, socialism. Apparently the tax code is market neutral only when it gives them what they want.

      1. Paid Minion

        The tax system is what it is, because the 1%ers have had their Government minions modify it to their benefit.

        The fact that it increases inequality, and puts the tax burden on the people who can’t afford to buy their Congressmen is just a byproduct.

        1. casino implosion

          The tax system has been designed for inequality ever since those old school 1%ers in powdered wigs and knee breeches–Alexander Hamilton and his cronies–created the funding system for the national debt in the late 1700s.

  3. Science Officer Smirnoff

    The big picture could start with the misalignment of management-plutocracy’s interests and everyone else’s (outside of plutocracy—in general). Bernie Sanders and his heirs would move from “the Wall Street business model is corruption” slogan to harping on the pillars of “reform” beginning in the late 1970s that have ushered in this present Free Lunch Movement for Top People.

  4. Pat

    Funny how the little people have to have skin in the game, but everyone else. I’ve been a great believer that one thing that should have been established decades ago was that by law Top Management for a corporation had to be limited to the same benefits as the rank and file workers. IOW, they have always needed to have a reason to treat the health and retirement benefits of their labor force with any concern. I was late to the idea that CEO bonuses, regardless of form, needed to be subject to payroll taxes and in no way tax deductible for the company, plus any so-called merit bonuses and any other bonus type whose estimated value was greater than 50% of their annual salary had to be put in escrow for five years and could be clawed back if any gains were temporary or if the company needed the funds to stay in business.

    But that’s just me.

  5. David E

    CEO’s and the rest of the 1% have a choice. They can either reform or there will be a revolt. The choice is their and not ours. No one wants to see the guillotines rolled out but without reform what other options are left?

    1. Vatch

      The article mentions the “Stop Subsidizing Multimillion Dollar Corporate Bonuses Act”. The 114th Congress is almost over, so it’s pointless to ask one’s Senators and Representative to support this bill at this late date. If a similar bill is introduced in the 115th Congress, we should let them know that it should become law. For what it’s worth, here are links to the bill in the House and Senate:



      Not surprisingly, Bernie Sanders and Jeff Merkley, the only Senatorial superdelegates to endorse Sanders, both co-sponsored the Senate bill.

    2. J

      A more educated public that nominates candidates and votes in their self interest. I know this is difficult to believe (especially to a NC reader) but there is still a major chunk of the population that has no clue this is occuring.

      For example, the one study 2 years ago that showed a majority of Americans think major company CEOs make thirty times the average worker (the actual figure is at least 300.)

      Unfortunately, this knowledge won’t be more widespread for another 5-10 years when normal people attempt to retire in big numbers.

      1. Vatch

        one study 2 years ago that showed a majority of Americans think major company CEOs make thirty times the average worker (the actual figure is at least 300.)

        That reminds me of some of the charts in this article:


        People know that inequality is worse than they think it should be, but they are completely unaware of just how extreme it is. Note that people understand that some economic inequality is acceptable.

        1. sharonsj

          People are unaware for two reasons: the corporate media isn’t going to tell them and often they are too ignorant or don’t care enough to find out for themselves. All you have to do is read the comments sections of most websites. You’ll see people parrot anything they’ve heard or seen on right-wing TV and radio when just a few minutes of research would prove them wrong.

  6. David L

    Despite hype about public pensions the average annual according to EPI is 12000 and 8000 for private each were about 12 percent of retirees so there are very few million dollar pensions there….and according to fidelity less than 1 percent of 401s and iras are over 1 million …..

    1. Altandmain

      Yes and they are disproportionately to the very wealthy.

      I’m afraid that this is the looting of society.

      Defined benefits are long gone and wages are so low that many people cannot save money for retirement. They are literally living paycheck to paycheck. That is due to wage stagnation and decline.

      Meanwhile there is endless talk of privatizing Social Security by Wall Street. If that happens, watch as more people get screwed over.

      1. David L

        You are right my data is fromna March EPI state of retrement report. Only 29 % of current retireees have DB public and privare and that number is heading down to near zero and the median is 1000 a month using the same immediate annuity calculator …i get a median value of 179 000 it sure beats the 401 k scam and of course even those are under attack both private and public

  7. PQS

    Didn’t Mitt Romney have like $40M in his 401K? Would that anyone would have asked some tough questions about THAT. I figured it was just a typical plutocrat deal, but according to this article, it is apparently common for Fortune 500 companies…..”special, tax-deferred retirement accounts” indeed. The appropriate word for this ought to be “illegal”.

    The entire edifice of retirement benefits in this country must be not just shored up, but demo’d and rebuilt. SS is a pittance (as my retired neighbor said, “$1500 a month seemed like a lot when we were kids, but it doesn’t go very far now), 401Ks are a joke, IRAs are another cruel joke, and in any event, hardly anyone makes enough money to save for retirement. Pensions? Ha. What’s a pension?

    Good article.

  8. David L

    I still dont know how he did it. I would have stuck my very small business in one because it is just side income but I found no way to do it. You can give them to a non profit but that is more estate planning which is irrelevant to most because only .00000something of deaths are over 5 million.

    1. Anonymous

      I read an article about how Romney did it. It involved putting leveraged buyout interests into his 401-(k), or IRA, or something. It was blessed by some white shoe law firm. I thought the figure was $100 million.

  9. pslebow

    More regulatory “solutions” to a systematic failure: capitalism. We know the ship is sinking – Do we need yet another blow-by-blow report on the latest cabin that has filled with water?

  10. Gus in CA

    Thanks for this and also for all the articles on Calpers, as well as the rest of NC great work.
    I need some help and have questions regarding best options for my long time girlfriend working as a teacher in CA. She is a tenured kindergarten teacher in SoCal. who can take retirement now, but wants to wait several years to wait for her pension check to increase, the longer she works the bigger her monthly pension checks become.
    Does anyone know, or can point us towards someone who does know, how this calpers time bomb will affect her? My fear is that she will work another five years, but won’t get the benefits those years are supposed to provide. If Calpers/California “goes broke” and benefits “need” to be slashed would she be better off locking in a monthly check now/soon, and would that monthly benefit be subject to future reductions or would it be locked in? If she did work another five or so years her monthly check would be three times what it would be if she retired today. (So they say).To her that seems hard to pass up… But will the benefit of working longer really be a benefit if pensions are slashed?

    1. Yves Smith

      Talk of CalPERS going broke is scaremongering by enemies of public pension systems. Unfortunately, that sort of thing (funded by billionaires like John Arnold) gets way more media play than it deserves.

      I don’t like giving advice, but the rights of CalPERS pensioners are extremely strong. They are an obligation of the state, not just the CalPERS system. In Illinois, which is in abjectly dreadful shape, members of the state pension system have similar strong rights. The state wanted to cut benefits and the state Supreme Court nixed the plan.

      Moreover, when benefit plans are cut, they tend to preserve the benefits of retirees (who can’t save more) and sometimes the older members in the system, and cut the benefits being accrued by current members.

    2. Goyo Marquez

      It’s CalStrs you’re interested in, Calif. State Teachers Retirement system, CalPers is for other public employees.

  11. Felix_47

    Thank you for presenting these articles. Every American should be infuriated including those in the 1%. We need confiscatory inheritance taxes so gaming the system is just not worth it. Now with the current low tax environment a narcissist can manipulate their way to dynasty creating money.

  12. blert

    These self-constructed, extreme retirement packages are nothing less than a looting.

    An income sur-tax upon this plunder might be directed towards re-liquifying the Pension Guarantee Fund that’s always on the edge of insolvency.

    For it has to be the case that these box car sized executive thefts came at the direct expense of every ordinary employee’s pension.

  13. LAS

    Another suggestion that might be emphasized is that when media reports GDP, they should be required to report on the Human Development Index with equal time and attention. Growth is meaningless without some understanding as to how it is being invested. We need more population investment, so show how we’re doing on that front.

  14. Ep3

    With a defined contribution plan, the employee manages the investment, taking on all risk they could lose everything. With a defined benefit plan, the employer is responsible for seeing that the plan is invested properly to have a rate of return to be able to pay out that pension at retirement.
    First, I would like to see more responsibility shifted from the employee regarding the investing. Why do we expect fast food workers to be investment experts? But if we guarantee some basis of return on a person’s retirement fund, how is it any different than Social Security? And conservatives cannot tolerate a system where everyone is treated equally with some sort of fairness.
    And then why did the amount of employer contributions to the plan change? I cannot believe it only cost General Motors 3% of an employee’s yearly salary each year for thirty years for GM to have enough to pay the employee a monthly benefit equivalent to their working wages. If that was all that it took, then they would not try to get rid of it. What I am saying is GM contributed far more each year to that employee’s retirement fund and by switching to a “matching 401k plan”, they cut their expense significantly. And where did that savings go? Doesn’t that belong to the employee?
    This is the only “benefit” I see for switching management. With an employer, everyone has to be a winner. With the fast food worker managing his retirement, there will be losers. And when you have winners and losers, you have the 1% and then the rest of us.
    As Yves has said many times before, the neoliberal master plan is to turn all of us into individual consumers who dictate outcomes everywhere by our dollar power. We are being told this is freedom. Freedom to choose how we spend our dollars, where we spend them, how we spend them. We even vote with our dollars. Somehow, at some point in human history, it was decided that there’s no way to rate humans. We all have talents, we all have flaws. So how do you make ratings system? If a person is a doctor, do they get one point? If they are a heart doctor, do they get 2 points? If they are a doctor that molests his patients, do they get a point deducted? But with money, it creates a rating system because the more money you have, we’ll that must mean the more “human points” you have and the better human you are.

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