A provision in the pension reform bill reportedly may bar some companies with underfunded plans from offering other special benefits solely to their top executives.
“We’ve heard too many stories of top executives of bankrupt companies sticking workers with unfunded pensions while running off with millions of dollars of so-called nonqualified pension benefits,” said Charles Grassley, chairman of the Senate Finance Committee, according to The Wall Street Journal.
As an example of the practice, the Journal noted that Delta Air Lines created a $45 million fund for 35 top officials even as its pension plan had a huge shortfall of assets.
Although a definition of the requisite “underfunding” has not been set, added the paper, one possibility would call the proposed rule into play when a company’s defined-benefit pension plan is funded at 60 percent or less of its projected liabilities.
According to the Journal, the House version of the bill would bar special payments to all managers covered by a troubled company’s executive retirement plan, while the Senate and the Bush administration want the new rule to apply only to the highest-ranking executives. The pension bill is reportedly expected to be sent to the President before mid-April.
Citing a recent survey of the 1,000 largest companies by Clark Consulting, the Journal observed that 90 percent offer nonqualified deferred executive compensation plans. Most of these companies include all managers with annual salary and bonus exceeding $150,000, it added.
Why is Congress determined to crack down on these special benefits for top managers? The theory, suggested the Journal, is that companies are more likely to freeze or terminate existing defined-benefit plans if top managers know that they’ll still be taken care of.
“The question of a double standard is very important and resonates with people in the middle class,” said Senate Finance Committee member Ron Wyden (D-Oreg.), according to the paper. Wyden criticized Glenn Tilton, chief executive officer of United Airlines parent UAL Corp., for arranging $4 million in benefits for himself while the airline’s employees were taking pay cuts, the paper noted.