U.S. CEO retirement packages: Bigger than yours

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Retirees play poker at a singles club in Sun City, Arizona, in this January 4, 2013 file photo. REUTERS/Lucy Nicholson

By Mark Miller

CHICAGO (Reuters) - Most fast food workers do not earn enough to retire with much of a pension. Then there is David Novak, executive chairman of YUM Brands (YUM.N), the conglomerate that runs Taco Bell, Pizza Hut, and KFC outlets.
Novak’s total retirement holdings, including deferred compensation, are worth $234 million - more than any other Fortune 500 chief executive.
Novak tops the list of Fortune 500 CEOs with the largest retirement nest eggs, according to a study from two progressive think tanks - the Center for Effective Government and the Institute for Policy Studies.
Their data comes from Security & Exchange Commission filings for the 500 largest public companies. The figures are stunning and cast a harsh and troubling light on soaring retirement inequality. The report offers yet another indication that runaway income inequality is producing grossly unfair retirement outcomes.
The top CEO retirement accounts are worth a combined $4.9 billion - equal to the total retirement account savings of the 41 percent of all American households with the lowest retirement wealth, according to the study.
Among all Fortune 500 CEOs, the typical value is $17.7 million. That includes the present value of defined benefit pensions, 401(k) account balances and other deferred compensation.
John Hammergren, CEO of drug wholesaler McKesson Corp (MCK.N) - which froze its employee pension fund in 1996 - has the largest Fortune 500 pension account, valued at $114 million.
McKesson declined to comment. A spokeswoman for YUM noted its stock appreciated 900 percent during Novak's tenure.
THE REST OF US
The CEO numbers are a stark contrast to the rest of us. In 2013, pre-retirement households (age 55-64) with annual income below $39,000 had median total retirement savings of $13,000 in 401(k) and IRA accounts, according to the Center for Retirement Research. Middle-class households (income from $61,000 to $100,000) had median savings of $100,000. Only in the highest-income band ($138,000 or more) were accumulations significant, at a median of $452,000.
Changes in our retirement benefit structure play a big role in account balances - especially the sharp decline in the share of private-sector workers receiving traditional defined benefit pensions.
In the past decade, 54 Fortune 500 companies changed their defined benefit pension plans, according to the Pension Rights Center - either reducing benefits, freezing plans or closing them to new hires, or terminating them altogether.
“Growth in CEO pay itself is one factor, along with the shift of employees out of defined benefit plans to less costly 401(k) plans, which have less risk for the employer,” says Scott Klinger, director of revenue and spending policies at the Center for Effective Government and co-author of the report.
The growing mountain of evidence on retirement inequality is adding to momentum to change national retirement policies in favor of middle and lower-income households. The starting point should be an expansion of Social Security to boost benefits for middle- and lower-income workers, an idea embraced by people like Democratic presidential candidate Bernie Sanders. Nothing else would have a broader, bigger impact.
Beyond that, we need to make access to workplace retirement saving universal. The Obama administration’s recent move to clear the path for states to create their own universal auto-IRA plans is a good start. The financial services industry opposes these programs on ideological grounds - mainly because they are seen as government mandates.
MANDATORY SAVING
Even so, opposition is loosening a bit. That was clear in a remarkable speech this month by Tony James, president of Blackstone (BX.N) - one of the world’s largest private equity firms. James issued a call for a universal, mandatory system of saving for all workers who do not currently have access to a workplace plan.
Specifically, he endorsed the Guaranteed Retirement Account (GRA), which is the brainchild of Teresa Ghilarducci, a labor economist at the New School for Social Research in New York City. The GRA calls for mandatory worker and employer contributions to a low-cost, professionally managed account.
“There is really no alternative; it has to be mandated," James said. "I know that can be a politically loaded word these days, but I assure you that nothing short of a mandate will provide future generations of Americans enough income for a secure retirement.”
Blackstone is not run by fire-breathing liberals. Its founders are deficit-hawk-in-chief Peter Peterson and Stephen Schwarzman, who several years ago infamously compared an Obama plan to raise taxes on carried interest taxes to the 1939 Nazi invasion of Poland.

Even Ghilarducci thinks positive movement might be coming. “I never thought 25 years ago we’d be talking about Social Security expansion - but here we are.”

(Editing by Beth Pinsker, Lauren Young and Dan Grebler)

Culled from Reuters

A chance to boost financial aid for today’s high-school sophomores-By Veronica Dagher

Strategic moves by Dec. 31 may help some families reduce the income to be reported on the Fafsa form for the

Graduates toss their caps after the Goshen High School graduation in Goshen, Ala., Thursday, May 28, 2015. (AP Photo/The Troy Messenger, Thomas Graning)

Attention, parents of high-school sophomores: There are financial steps you may want to take before year-end to help your child get more financial aid for the freshman year of college.

A recent executive order signed by President Barack Obama will change the rules for the Free Application for Federal Student Aid beginning with aid for the 2017-18 school year. Families will complete the form based on their “prior prior year” income instead of prior-year income as they do now.
That means that current high-school sophomores who graduate in 2018 will use 2016, not 2017, as the base year in reporting family and student income on their first Fafsa form. The government form is used in determining the amount of grants, loans and other forms of financial aid.

The upshot: If families were contemplating actions in 2016 that might boost their taxable income, they should consider accelerating those moves into 2015 instead. And they may want to look for other opportunities to shift 2016 income into this year and delay deductions—contrary to the standard tax-planning strategy of trying to delay income and accelerate deductions.

“You used to do this planning in a student’s junior year. Now you need to do it a year earlier,” says Mark Kantrowitz, a financial-aid expert in Las Vegas.

For example, he says parents of high-school sophomores who are considering converting a traditional individual retirement account to a Roth IRA, a move that boosts taxable income, may want to do it before year-end.

Deborah Fox, founder of Fox College Funding LLC in San Diego, advised the business-owning mother of one high-school sophomore to wait until 2016 to establish and contribute to a simplified employee pension plan. She also recommended the woman delay deductible computer purchases until next year and speed up her company’s billing so she receives as much income as possible in 2015.
Ms. Fox advised the family against prepaying their January mortgage and property-tax bills in December as they had planned. And she told the father to see if he can receive his bonus by Dec. 31 instead of in early January.

Before year-end, affected families may want to lock in any capital gains on investments they were planning to sell next year. Children who have investments with embedded capital gains in their own names—such as in a custodial account—should also consider selling before year-end to recognize the gains if the investments will be used for college, says Michael Kitces, partner at Pinnacle Advisory Group in Columbia, Md.

Families should check with their accountants to see how accelerating income or delaying deductions will affect their taxes, Ms. Fox says.

As of now, the base-year change applies only to the Fafsa and not the CSS/Financial Aid Profile, the financial-aid form almost 300 private colleges use to award their own funds. The College Board, which manages the CSS form, says it is “committed to supporting institutions as they make the transition” to prior-prior-year data and is “working closely with our members and leaders at colleges and universities to determine next steps for the CSS/Financial Aid Profile.”

Grandparents will also want to be aware of the change to prior-prior-year numbers on the Fafsa, Mr. Kitces says. When the change kicks in, it will enable them to make financial gifts to college students, including distributions from grandparent-owned 529 college-savings plans, earlier in the college years without those dollars being counted as student income on the Fafsa.

As of the second semester of these students’ sophomore year in college, the prior prior year for their third and fourth years of college will already be over.

Culled from Wall Street Journal