The Great Retirement Income Divide Is More Like A Chasm

We’ve all heard of the great income divide. Now comes part two, or the great retirement income divide.

When it comes to retirement income, there are the CEOs of the nation’s largest and richest companies, and then there’s everyone else, a new report has found.

The CEOs of the largest 100 companies in the country have retirement funds with a collective worth of $4.7 billion. This is a sum equal to the retirement savings of the 41 percent of U.S. families with the smallest retirement nest eggs, the report by the Institute for Policy Studies found.

So while millions of workers haven’t saved nearly enough for their retirement, top executives reap benefits beyond what they will likely ever need. according to the report.

The study, titled "A Tale of Two Retirements," was posted to the institute’s website last week.

Sarah Anderson, co-author of the report, called it a “dramatic example of the extreme divide we have around retirement.”

“There’s a double standard,” Anderson told InsuranceNewsNet. “Ordinary workers have strict limits on what they can put aside for retirement, but CEOs have an unlimited amount.”

The CEO-worker retirement benefit chasm isn’t the result of CEOs working harder or investing assets more wisely, but the result of tax policies, according to Anderson.

“Instead, this gap is one more example of rule-rigging in favor of the 1 percent,” she said.

With nearly $3 billion in special tax-deferred accounts, the CEOs of Fortune 500 companies stand to gain even more from tax cuts proposed by President-elect Donald J. Trump. Trump has proposed to drop the top marginal tax rate from 39.6 percent to 33 percent, the report said.

Retirement estimates were derived from company documents filed with the Securities and Exchange Commission.

By adding the CEO’s pension amount to the executive’s deferred compensation amount, Institute of Policy Studies researchers Anderson, Scott Klinger and Christopher Pitt came up with the retirement asset total.

The retirement asset total was converted into an income annuity at age 65.

Billion-dollar Chasms

The large income gap in the U.S. between an hourly factory worker or salaried middle manager and the company CEO is no secret, but the retirement income gap is truly massive.

The CEO with the most retirement income — Glenn M. Renwick who retired from Progressive Insurance earlier this year with $194 million in retirement assets — would reap the equivalent of an estimated $1 million a month if his retirement assets were annuitized, the report said.

Prudential Financial CEO John Srangfeld, Number 10 on the list with $85 million in retirement assets, would receive $453,179 a month in retirement, the report found.

Other life insurance and retirement company CEOs on the top-100 list include Ameriprise Financial’s James M. Cracchiolo ($222,000 a month), Principal Financial’s Larry D. Zimpleman ($164,000 a month), Unum’s retired CEO Thomas R. Watjen ($131,000 a month) and Lincoln National’s Dennis R. Glass ($130,000 a month).

CEOs of other financial services companies such American Express, Morgan Stanley, Goldman Sachs, US Bancorp and BB&T feature among the top 100, as do executives from a handful of other sectors like oil and gas, retail and pharmaceuticals.

Critics of executive compensation practices have called for reform, saying incentives often are misaligned. But business groups respond that CEO compensation is set by independent directors and that executives are rewarded in way commensurate with the interests of shareholders and with company performance.

The report calls for several measure that would narrow the retirement income divide. These include eliminating tax-deferred compensation plans for executives and disallowing companies to deduct pension and retirement costs from federal taxes if they have frozen worker pensions or closed plans to new hires.

Also recommended is removing the “performance pay” loophole that allows for unlimited corporate tax deductions for executive pay. The report also calls for expanding Social Security, safeguarding pensions and shoring up labor laws to help workers unionize.

This year’s report was the institute’s second annual study of executive compensation. The study compared retirement assets of the CEOs to different demographic groups by digging into how much richer white male CEOs are compared with everyone else.

Latino Workers Furthest Behind

The sum of the 10 largest retirement funds held by white male CEOs amounted to $1.4 billion compared with the sum of the 10 largest retirement funds held by female CEOs at $300 million. The $1.4 billion figure also compared with the sum of the 10 largest retirement funds held by minority CEOs at $165 million.

Marilyn A. Hewson, CEO of defense contractor Lockheed Martin, is the highest ranked woman CEO. She holds with $75 million in retirement assets, or the equivalent of $379,000 a month in retirement.

Kenneth I. Chenault, CEO of American Express, is the highest ranked minority CEO, with retirement assets of $45 million, or the equivalent of $237,000 a month in retirement.

The top 100 CEOs have retirement wealth equal to that of the bottom 44 percent of white working class households. These top CEOs' wealth also is equal to that of the bottom 55 percent of female-headed households, the bottom 59 percent of African-American families and 75 percent of Latino families, the report also found.

“The figures in this year’s study for Latino families are shocking and stand out,” Anderson said.

On average, the nest eggs of the top 100 CEOs are each worth nearly $47.5 million. If converted to an annuity at age 65, the funds would generate $253,088 monthly in retirement for the rest of the CEOs' lives, the report said.

By contrast, the median balance in a 401(k) at the end of 2013 was $18,433, or enough for a monthly retirement check of $101, the report said.

Long term, the implications for such disproportionate income levels is not good as consumer demand is so concentrated among so few people, Anderson said.

“How can it be good for our economy with so many just scraping by?” she said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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