Fix the Debt: Part II (In Which CEOs Bravely Push Austerity To Save a Nation and their assets)

As America lurches toward the “fiscal cliff,” 90 or so of the most powerful and civic-minded CEOs in the country have banded together, in a patriotic little cabal called “Fix the Debt” to save us all from our profligate ways. Ostensibly these guys know more about money—how to make it, how to use it, how to make it grow—than anyone else in the country, so they are “natural-go-tos” for making the debt go away . . . right?  Well, maaaayybe.

I’m no economist but when politicians start talking about cutting Medicare, Social Security or Medicaid to keep a bloated defense industry afloat, and corporate tax breaks in place, CEOs’ brains are not the first ones I’d choose to pick for balanced solutions.  These are guys who make obscene amounts of money finding ways to keep their bottom lines meaty, come hell or high water.  They are rewarded by their shareholders, specifically, for elevating single-minded self-interest to an art.

And when they volunteer to help the administration solve its problems, and pony up $60 million to “socialize” their ideas, you can be sure they have not taken their eye off the prize for a second.  These particular CEOs have presided over the most enormous declines in private retirement pension plans in US labor history and those who still provide traditional pension plans for their employees have looted them and left their plans seriously underfunded.

With their own employees retirement plans far more uncertain, these are the guys relentlessly arguing that the president needs to lead by cutting back on the only piece of retirement planning that is reliable—Social Security and Medicare.  They suggest raising the retirement age and lowering retiree expectations (i.e., cutting benefits).  The Institute for Policy Studies has gathered all of the gory details in a report that they subtitle “Pension Deficit Disorder.”

And if anyone sees fit to argue the soundness of the CEO’s approach? well, let me just quote Aetna’s CEO, Mark Bertolini:

The solutions [to the fiscal cliff] are –- it’s the retirement age; means testing Social Security and Medicare; it’s a whole host of things that are known.

But if no deal is reached, then:

the American people are going to suffer because we’ll lay them off—because we know how to respond to these kinds of situations.

David Cote, CEO of Honeywell, expressed similar sentiments, albeit a little more diplomatically presented, on Meet The Press recently:

GREGORY:  Well let me—we talk about the state of the economy right now.  David Cote is the CEO—CEO of Honeywell.  He served on the Simpson-Bowles commission.  He met with the president this week.  David, it’s good to see you.  And—and I wonder what you could tell us about the state of the economy right now as the president embarks on a second term.  How—how bullish are you about improving conditions?

MR. DAVID COTE (Chairman & CEO, Honeywell):  Right now, I’m not that bullish at all.  And, in fact, I’d say there’s a great uncertainty that’s just hanging over the entire economy because we’re not confident that our guys can govern anymore.  We’ve got 536 independent contractors all talking about the significance of jobs, but the one thing that they could do that would remove that uncertainty and create this job growth we’d all like, they’re not doing.  And there’s a couple of stumbling blocks.  It’s not just taxes. 

We have a significant problem with entitlements.  Medicare, Medicaid in—in particular.  Those things need to get resolved together. If we could actually develop a four trillion dollar credible market credible plan that would cause everyone out there to say, wow, we can govern again.

GREGORY:  Yeah.

MR. COTE:  This debt crisis has been averted, the fiscal crisis has been averted.  We’ve got past all this.  There’s a lot of money on the sidelines that people are willing to invest.

GREGORY:  And—and…

MR. COTE:  But people like me just aren’t hiring now because we’re not confident they can do it.

GREGORY:  Well, and that’s—I think the positive case, I guess my question for business leaders like yourself, you’ve worked with this president.  You’ve been more of an ally of this White House.  You know as well as I do a lot of your—your colleagues, fellow CEOs, are really upset with this White House.  Is there a way for him to rebuild an alliance here with corporate America, to get some of these things done?
MR. COTE:  Of course, there is.  And if you take a look at what we’ve been able to do with our fix the debt camp—the campaign to fix the debt, that’s a group of CEOs who have gotten together, an ad hoc group were not part of any other organization, and we’ve raised about 40 million dollars just to be driving this point that it’s tax reform that raises more revenue, and it’s entitlement reform, the ticking time bomb that’s going to kill us and we’ve got to do all this at one time.  So we are very supportive of the president being able to get something like this done.  It’s vitally important for our economy.

Maybe another reason Mr. Cote “isn’t hiring right now” is because, of the 130,000 Honeywell employees only 58,000 are in the US.

Honeywell, the firm with the largest CEO retirement fund, owes its worker pension funds $2.8 billion.  Mr. Cote doesn’t seem up to handling his internal pension fund debt but is happy to advise the federal government on how to manage theirs.  But Cote is far from alone on this.

According to IPS’ report:

Most of these CEOs preside over firms that have shifted responsibility for their employees‘ retirement security from the corporation to the employees themselves. And yet the vast majority of Fix the Debt CEOs have set themselves up with gilded retirement fortunes.

The 71 Fix the Debt CEOs of public companies have average retirement assets of $9.1 million. Of these, 54 participate in their company‘s retirement programs and have collective pension assets of $649 million, or more than $12 million per CEO. If this amount were converted to an annuity at age 65, it would provide each CEO a monthly retirement check of more than $65,873 a month. In contrast, the average monthly Social Security check for retired workers is $1,237.”

. . . The 71 publicly held firms have a combined deficit of more than $100 billion in their employee pension funds.

This means that employees face great uncertainty about whether the pension benefits promised to them will actually be paid. This is especially true for firms that wind up in bankruptcy. Current federal law requires that these pension deficits be reduced through increased corporate funding, but many CEOs are responding to this requirement by pressuring workers into accepting reduced pension benefits.

Meanwhile, in December 2011, the non-partisan organization Public Campaign criticized Honeywell International for spending $18.30 million on lobbying and not paying any taxes during 2008–2010, instead getting $34 million in tax rebates, despite making a profit of $4.9 billion, laying off 968 workers since 2008, and increasing executive pay by 15% to $54.2 million in 2010 for its top 5 executives.

And Honeywell was not alone—by employing a plethora of tax-dodging techniques, 30 multi-million dollar American corporations expended more money lobbying Congress than they paid in federal income taxes between 2008 and 2010, ultimately spending approximately $400,000 every day—including weekends—during that three-year period to lobby lawmakers and influence political elections, according to a new report from the non-partisan Public Campaign.

So.  Why exactly would these sharks mobilize, to this extent, to push highly unpopular cuts to pay-for-benefits programs like Social Security and Medicare when they have done so much to destabilize the retirement of millions of hard-working Americans?  Wouldn’t it be best to just keep their heads down, count their money and whistle past the retirement home?

Ezra Klein makes some pretty good guesses about why they’re so up-in-arms . . .

Social Security taxes don‘t apply to income over $110,000. In 2011, [Goldman Sachs CEO and Fix the Debt supporter] Lloyd Blankfein‘s total compensation was $16.1 million. That means he paid Social Security taxes on less than 1 percent of his compensation.

If we lifted that cap, if we made all income subject to payroll taxes, the Congressional Budget Office estimates that it would do three times as much to solve Social Security‘s shortfall as raising the retirement age to 70. In fact, it would, in one fell swoop, close Social Security‘s solvency gap for the next 75 years.

That may or may not be the right way to close Social Security’s shortfall, but somehow, it rarely gets mentioned by the folks who think they’re being courageous when they talk about raising a retirement age they’ll never notice.

Another possible reason CEOs are so eager to raise the Social Security retirement age is that it increases their leverage to try to raise the retirement age in their corporate pension accounts. Such a move, if successful, would allow them to defer paying promised benefits and save their underfunded pension plans tens of billions of dollars.

Watch Ezra Klein eviscerate the CEO’s pet project:

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Posted by Bette Noir on 11/29/12 at 11:02 AM • Permalink

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