January 3, 2012
This is only one of many exasperating examples in Schultz’s book – and far from the worst. Unfortunately, the details in Schultz’s book are so technical that they can become deadening. It’s almost impossible to follow all of the ins and outs of the financial engineering and legal end-runs. And the anecdotes about the retirees who are harmed are appalling, but they too can have a numbing effect – we’ve heard so much of this before, in other contexts. Schultz is too close to this – she needs somebody like a Michael Lewis to co-author it with her, someone who doesn’t feel compelled to explain every detail or belabor every personal catastrophe, but rather can focus on the overarching narrative.
That said, from these minutiae the overall message of the book emerges inescapably: Ordinary retirees are being swindled out of retirement benefits that any reasonable person would have said they were promised, while corporate executives, at the same time, are being awarded benefits wholly out of proportion to what a mere mortal’s services are worth.
How can this happen?
Schultz does not explore in depth what circumstances in the broader economy, society, or body politic are allowing this heist to be carried out. After all, retirement plans are supposed to be managed under the “sole benefit” standard, which says that the plans are to be managed for the sole and exclusive benefit of the employees, their families and dependents. Is the explanation simply that the retirees of any particular corporation have no power (especially the non-union ones), and therefore can be run over roughshod? Is it that courts of late have tended to side with corporations, perhaps because corporations can afford better lawyers? (Those lawyers’ fees, by the way, can often be paid out of the retirement plans.) Is it that rhetorical and statistical lies are so commonplace these days that no one is supposed to believe anything anymore? Or is it just that financial engineering has gotten so complex that ordinary people have little choice but to sit on the sidelines and assume, or hope, it is being done in their interest?
In many ways, it is only an extension of other phenomena we’ve been seeing, especially in the financial crisis. Financial industry companies treat customers as sources of revenue to be inveigled into paying as much as possible, through shrewd half-truths, complicated language and methods, and bold false promises accompanied by exculpating fine print. The only difference is that the victims are retired employees instead of customers.
The whining of corporations about their supposedly underfunded pension plans is a result of their apparent lack of bubble wisdom – or perhaps simply of moral hazard. Pension plans were collectively overfunded in 2000 and were again fully funded in 2007, according to Schultz, but many companies contrived in one way or another to withdraw the overfunding, ostensibly oblivious to the possibility of a downturn. As Schultz says, companies claiming they need to get funding relief by reducing or eliminating benefits “fail to acknowledge that most of their current woes are self-inflicted. They took on too much risk but failed to fund when the party inevitably wound down. They withdrew too much money – and in many cases paid their executives too much compensation – instead of contributing to the pension plans for retirees. Their pleas for funding relief are little different from the banks asking for bailouts after their own risky lending practices and financial shenanigans brought the economy to its knees.”
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