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A Tale of Two Unequal Retirements

A new Institute for Policy Studies report reveals a wide divide in retirement assets between top CEOs and average Americans. Chalk that gap up to a set of rules rigged against working people.

The 2016 presidential election has placed a spotlight on the economic insecurity millions of American voters are feeling, the result in large part of the loss of millions of unionized factory jobs once a major source of both decent pay and retirement benefits.

But the executives who engineered that loss are feeling little of that insecurity. A new Institute for Policy Studies report shows an enormous retirement security divide between those at the top of corporate America and nearly all the rest of us.

Using data from corporate proxy statements, the report identifies the U.S. CEOs who’ve amassed the largest company retirement funds. Just 100 of these corporate leaders have company retirement funds worth $4.7 billion — a sum equal to the entire retirement savings of the 41 percent of U.S. families with the smallest nest eggs.

This staggering gap grows even wider when we compare CEO nest eggs to the retirement savings of people of color and women. The 100 CEO $4.7 billion total equals the entire retirement savings of the bottom 59 percent of African-American families, 75 percent of Latino families, and 55 percent of female-headed households.

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The retirement gap with white working class families runs slightly less extreme, cold comfort to the nearly 40 percent of non-college-educated whites with no retirement savings whatsoever.

Why has the CEO-worker retirement benefit gap become such a chasm? Executives are not working harder or investing more wisely. Instead, this gap offers one more example of rule-rigging in favor of the 1 percent.

For decades now, big company CEOs have been cutting traditional employee pensions, the type that guarantee a monthly check after retirement. Instead, they’ve been eliminating retirement benefits altogether or introducing 401(k) plans that shift investment risk onto employees.

Our CEO pay system gives CEOs a personal incentive for this cost-cutting. More than half of executive compensation is now tied to the company’s stock price, and so every dollar not spent on employee retirement security is money in CEO pockets. These business leaders have few incentives for high-road practices — reducing employee financial stress to curb absenteeism and health problems, for instance — that might be better for companies in the long-term.

Every dollar not spent on employee retirement security is money in CEO pockets.

As Sarah Anderson, the lead author of the new Institute for Policy Studies retirement report, puts it: “While slashing jobs and benefits for ordinary workers, CEOs of large companies have been feathering their own nests. It’s no wonder so many American workers are concerned about whether their golden years will be tarnished by severe economic hardship.”

Ordinary Americans lucky enough to be offered a 401(k) plan face strict limits on how much they can contribute to the fund every year ($24,000 for older workers). 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. Fortune 500 CEOs have nearly $3 billion in these deferred accounts.

This double standard doesn’t mean much, of course, to the millions of Americans who have no employer-sponsored retirement plan at all. According to the Economic Policy Institute, among workers approaching retirement age, nearly 40 percent have no such plan and will likely depend entirely on Social Security, which pays an average benefit of only $1,239 per month.

By contrast, the top 100 CEO nest eggs are large enough to generate for each of these executives a $253,088 monthly retirement check for the rest of their lives.

Our report identifies a number of steps we can take to reduce public subsidies for lavish CEO retirement accounts. But the real answer to the retirement divide lies in expanding Social Security to provide for the millions of soon-to-be-retiring American workers who have worked all of their lives for employers who provided little or nothing for their retirement security.

One fair way to help pay for this expansion would be to demand that CEOs and other wealthy Americans contribute to Social Security on all their earned income, as almost all other workers already do. Especially given their active role in increasing retirement security, this seems only fair.

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