Source: Too Much.
Corporate CEOs and other key employees can be offered unlimited retirement benefits under deferred compensation plans, under which the employer agrees to put aside a certain amount of salary into a special fund, to be drawn out at a specific future date.
As in a 401(k) retirement plan, the money is not taxable until it is drawn out. Unlike a 401(k) plan, the terms of the contract are set by negotiation, and can be different for each individual. The drawback of the deferred compensation plan to the employer is that the money being held back is part of the company’s general assets and is not subject to any guarantee against loss.
A recent report, A Tale of Two Retirements, states that 73 percent of Fortune 500 CEOs are covered by such plans.
The rationale for such plans is that they are necessary to retain key employees. If the employees quit, the deferred compensation doesn’t follow them.
This is big money. The top 100 CEO retirement funds total $4.9 billion, according to the authors of A Tale of Two Retirements. That’s equivalent to the retirement assets of the bottom 50 million American families, they wrote.
The Center for Effective Government and Institute for Policy Studies have proposed reforms, which include:
- Make all retirement programs subject to the same contribution limits as 401(k) plans.
- Cap tax-deferred retirement accounts at $3 million each. Tax the amounts above $3 million at standard rates.
- Cap the the retirement plans of CEOs of major federal contractors to what the President of the United States gets.
- Expand Social Security and lift the cap on earnings subject to Social Security taxes.
- Allow state governments to offer retirement plans to all state residents without the high fees often charged by private mutual funds.
I’m fortunate in my own retirement. I have Social Security, a defined-benefit company pension and savings of my own. I attribute this to having been born in the right year, to being free of large debts during my working years, and to having enjoyed stable employment—none of which are due to my own merit.
I know many people, just as deserving as I am, who have barely enough to get by. If these are good times, they should be good times for everybody. If these are tough times, they should be tough times for everybody, including the bosses.
A Tale of Two Retirements by Sarah Anderson of the Institute for Policy Studies and Scott Klinger of the Center for Effective Government.
Nonqualified Deferred Compensation Plans by Fidelity Investments.
Nonqualified Deferred Compensation Plans by Inc. magazine.
Is your pension safe? These are the next funds to fail by Kate Lobosco for CNN Money.