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Barbara Whelehan writes Boomer Bucks for Bankrate.comA tale of two pension plans: regular vs. CEO

Corporate promises for a traditional pension benefit can be easily broken for the average worker, but not so for the top brass.

Traditional pension plans for the average Joe are creeping into the Ice Age, as more companies have announced the decision to deep-freeze their pension plans to current or new employees -- or both. General Motors Corp. and Alcoa are among the latest to jump on the frozen-pension bandwagon that includes IBM, Verizon, Sears, Circuit City, Hewlett-Packard, Lockheed Martin, Motorola, Aon Corp. and NCR. Most of these companies are not on the verge of bankruptcy, mind you.

This freeze phenomenon spells disaster for boomers who had been promised a pension and who have 10 years or more left till retirement. That's because benefits under the traditional pension formula ordinarily accrue at accelerated levels for older employees as they approach retirement. The last 10 years are absolutely crucial. With frozen plans, benefits stop building up altogether.

Another trend among companies is to convert defined-benefit plans into cash-balance plans, which substantially reduces a pension's value because the benefit buildup is calculated differently than with a traditional pension plan. Hundreds of companies have chosen to do this in recent years.

But the retirement plans of highly paid executives are not affected at all by these trends. That's because they're a different breed. I mean the retirement plans, not the execs, though I suppose that statement could apply to either. Most top executives have so-called "supplemental executive retirement plans," or SERPs, that are governed by a different set of rules, because they're nonqualified plans.

Qualified pension plans have tax benefits for both employer and employee and have to pass rigorous IRS nondiscrimination tests that ensure some semblance of fairness among highly compensated employees and those that are not highly compensated. Nonqualified plans have no tax benefits and no such fairness standards.

Congress suddenly appalled
Recently, some members of Congress have voiced objections to the retirement pay disparity between top executives and their employees. One bill, introduced by Rep. George Miller, D-Calif., would disallow companies from funding pensions for the top brass if they're unable to adequately fund their workers' pensions. Other bills along similar lines have surfaced.

"This huge disparity between ... protected pensions that CEOs have versus production workers is really immoral," Miller told the Los Angeles Times.

Just how lavish are the retirement deals for top execs? It's not all that transparent because current rules allow their retirement packages to be obscured from investors, financial analysts, the media and everyone else. That might change in the future, as the Securities and Exchange Commission last month proposed that disclosure requirements be improved concerning executives' pay, including their retirement benefits.

As it stands now, shareholders rarely get wind of just how generous executive retirement packages can be until it's too late -- when the executive already starts drawing payments. This information is not included in the summary compensation tables required under current law that are readily available to the public.

Those tables list various forms of compensation awarded to the top five executives in a company, but the retirement plan is not on the radar screen, Lucian Bebchuk wrote in a recent commentary for the Wall Street Journal.

Next: "What stunning leadership!"
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The demise of private pension plans
Retirement plan trends don't favor workers
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