Pension Reform for the Rich
Schoeplein, Robert N.
Pension Reform for the Rich ROBERT N. SCHOEPLEIN You cannot have any system that is perfect, but I want to see anyone justify taxing a man or a woman who makes $7fi00, $8fi00, or $9,000 a...
...The percentage would increase annually over the subsequent ten years, until full vesting of benefit credits is realized after fifteen years of employment...
...The ensuing attack on the Nelson pension lid by moderate and conservative Republicans produced a few unintentibnal laughs for the common folk...
...The Senate had an opportunity to reduce sharply the extent of income tax manipulation by executives and professionals under the guise of pension plans, but Senators chose instead to create a lot of noise by whooping and yelling over the super-rich who could not care less about pensions as a means to subsistence in old age, but who do care about pension plans as a vehicle to beat one's taxes...
...In the 1968 pension reform hearings, then Assistant Labor Secretary Thomas Donahue summed up the private pension plan dilemmas in this statement: "In all too many cases the pension promise shrinks to this: 'If you remain in good health and stay with the same company until you are sixty-five years old, and if the company is still in business, and if your department has not been abolished, and if you haven't been laid off for too long a period, and if there's enough money in the fund, and that money has been prudently managed, you will get a pension.' It is utterly indefensible in a society as affluent as ours that an individual's economic security in his later years should rest on such a flimsy foundation and be so endangered by such an incredible list of 'ifs' and 'maybes.'" One outgrowth of the Labor Subcommittee's efforts was the Williams-Javits' Retirement Income Security bill (S...
...Perhaps we ought to say a head and a tail, because there is both a worker side and a wealthy side to the pension reform coin...
...This significant, revised Ways and Means pension reform proposal—as of this writing neither reported nor placed on the House calendar—is scheduled for early action by the Rules Committee...
...The average annual pension benefit for highly compensated executives in the SEC sample was $61,000 a year in retirement, and C. B. Branch of Dow Chemical Company topped the sampled list with estimated annual retirement plan benefits of $157,400 a year...
...Responding to Treasury testimony that in 1972 alone, 19,400 workers lost pension credits totaling $49 million in anticipated benefits because of inadequate funding in terminated plans, the Senate bill now requires current funding of normal annual costs of the pension plans...
...What about the details of the upper-income side of the coin...
...The nice inch-and-ahalf long fellow who likes you so much he's come to live with you in your house is called periplaneta americana...
...Roaches love beer— probably because they watch so much television...
...Supella longipalpa likes to live in your television set...
...The Committee noted that corporate executives were realizing sizable tax breaks that were closed to non-incorporated professionals, self-employed businessmen, and moderate-income employes (to say nothing of workers not covered by pension plans...
...The Treasury concedes that more than ninety per cent of the tax relief will be enjoyed by persons with incomes in excess of $15,000...
...The Senate omnibus bill sets new standards in work er pension rights...
...This is because almost all of nature regards the roach as smelly and foul tasting as we homo sapiens do...
...Biologists tell us the little fellow has been around for at least 250 million years, and each of these years has been better than the one before it...
...The retired person typically is in a lower income tax bracket than in his working years, however, and corporate income taxes are avoided throughout...
...1179) that addressed itself to income tax treatment of financial transactions relating to pensions...
...One could refer to this argument as Scott's meritocracy theory of taxation, which seems to be embraced by a majority of the Senate...
...The response by the Committee to corporate executive favoritism was to extend the income tax avoidance advantages inherent in pension plans to all upper-income taxpayers who work...
...Other elderly workers told of being dismissed by firms after twenty or thirty years of service, losing all pension credits as a consequence...
...He's not the only guy to make your home his...
...Watergate scandals have obscured many otherwise newsworthy events...
...Approved pensions under Treasury regulations cannot be designed to favor highly-compensated executives, but accountants and pension consultants have been successful over the years in designing special employe classifications and other features into pension plans that result in unique deferred compensation schemes for senior executives...
...von Hoffman is a frequent commentator on "Spectrum," produced by CBS News...
...If the professionals still find their own income tax de duction for retirement saving to be too miserly, they can turn to the "closely held," or professional corpora tion route...
...JP VICES IN COMMON In this time of ecological disaster when so many animals are becoming extinct, I have good news for you...
...Though the Treasury has been reluctant to detail the figures any further, much of the tax savings will accrue to individuals in the $40,000-andover income classes...
...There are a number that work pretty well on the little beasts, but the animals do have the capacity to develop resistance to them...
...Given this stance, the sheer weight of the bill squashed those few Senators who rose in objection to specific special-interest provisions...
...The Senate Subcommittee on Labor held full-scale hearings in 1968 and again in 1971-1972, and the House Ways and Means Committee held its own public hearings in mid-1972...
...Combined staff meetings of the House Ways and Means Committee and the House Education and Labor Committee in January has resulted in a House version of the Senate bill, and the culminating chapter in the seven-year pension reform saga is near...
...President Nixon issued a formal statement making it unmistakably clear that under no circumstances would he surrender the Watergate tapes...
...The only reason that this un justice exists in our tax law is because it is so complicated that few even figure out what is done, but the people are going to find out if I can get my voice heard...
...However, it does appear that hedgehogs, centipedes, red mites, and tarantulas do find them good eating, but many families might have difficulty deciding whether to opt for a nest of cockroaches or a home-loving deadly spider...
...that is, no one in any corporation could receive a pension from tax shelter sources in excess of $45,000 a year...
...These annual pension ceilings, it must be stressed, apply only to payments out of the tax avoidance pension trusts...
...The Nixon Administration advocates tripling the present ceiling for personal saving under the Act, up to a maximum of the lesser of fifteen per cent of earned income, or $7,500 each tax year...
...Their findings showed corporations with privileged pension plans covering senior corporate executives which would allow some to enjoy an estimated retirement benefit of more than $100,000 each year...
...Specifically, Nelson proposed that the limits on deductible contributions to pension funds be set so that the maximum individual pension could not exceed seventy-five per cent of the average last three years of earnings based on $60,000 maximum income...
...As a consequence, this piece of legislation contained a little something for almost everyone—everyone, that is, except the many poor and the few super-rich...
...Should this amendment fail, Nelson was prepared to introduce a backup measure to extend the $75,000-a-year pension ceiling proposed for professional corporations to cover all corporations...
...4), which ostensibly aimed at protecting workers' pension rights...
...Witness after witness appearing before the Subcommittee on Labor related horror stories of companies merging or collapsing, leaving them with fractional pensions or no pensions at all...
...That is absolutely unconscionable, and I do not think it could be defended in any forum in America...
...Even a Nixon Administration pension reform bill (H.R...
...The thirty million employes now covered in some fashion by private pension plans most certainly will receive some benefits in the emerging pension reform legislation...
...Moreover, the Senate would require employers to make additional scheduled contri butions to bring the previously unfunded elements up to par, plus a tax on the employer of $1 a year per covered employe to finance a Federal pension insur ance system...
...Attempts to amend the Senate bill to include widow's benefits and pension eligibility for part-time employes failed by wide margins...
...The House Ways and Means Committee, in executive session during December, marked up the finai draft of still another new pension reform bill, to be launched as a "cleaned-up" alternative to the complex omnibus Senate bill...
...And the Senate bill only glosses over the complex issue of portability—the transfer of an employe's pension credits from one firm or industry to another company or pension plan in the event of a change in employment...
...Ultimately, pension benefits paid to retired employes are subject to individual income taxes...
...In a society where life expectancy has increased dramatically, there is widespread concern over how to finance the golden years in an economy where the fixed costs of living are high and constantly increasing...
...Former Vice President Agnew had heatedly denied rumors that his resignation was imminent...
...A recent study in California revealed that more than seventy per cent of professional corpo rations in that state are one-man organizations...
...The American Medical Association, American Bar Association, American Bankers Association, and National Association of Manufacturers—not satisfied with three-quarters of a loaf—have filed statements with the Committee opposing any limitations on pensions drawn from tax deductible contributions...
...Senate debate over pending pension reform legislation, September 19, 1973 Senator Gaylord Nelson's words were no doubt lost to many last September 19...
...The Senate, in its generosity, has embraced this element of the Administration proposal...
...An employe then would realize a vested right to twenty-five per cent of his accumulated pension benefits after five years of service...
...herein lies a tale...
...While these items received the major headlines, up on Capitol Hill the U.S...
...Tests conducted at Oklahoma State University show that cockroaches perfer Pabst Blue Ribbon beer over all other brands tested, a testimonial the Pabst people may not want to use in their advertisements...
...In a classical showdown, Senator Nelson's pension reform bill amendment went down by a 59 to 32 vote...
...Luckily, every creature does have his Achilles heel and the cockroaches' is beer...
...Moderate and conservative Republicans and Southern and Southwest Democrats provided fifty-nine votes against the amendment...
...Pension Reform for the Rich ROBERT N. SCHOEPLEIN You cannot have any system that is perfect, but I want to see anyone justify taxing a man or a woman who makes $7fi00, $8fi00, or $9,000 a year in order to pay someone else a pension of $137,000 a year...
...Sorry, Indian chiefs don't count—though by bitter experience they might best understand the continued and expanded income tax shelters and tax deduction ransoms that upper-income taxpayers may extract from the general public as a price for realizing some long-overdue workers' pension rights...
...NICHOLAS VON HOFFMAN (Mr...
...Congress created a special income tax deduction for doctors, lawyers, other professionals, and self-employed businessmen in 1962, in consideration of the privileged income tax advantages enjoyed by their corporate executive brethren through pension plans...
...In the September 19 roll call showdown on the principal Nelson amendment, thirty-one liberal Democrats plus Clifford Case, New Jersey Republican, voted for the Nelson $45,000 maximum pension from tax-shelter funds...
...Roaches, reports Laura Henning in the Smithsonian magazine, have few natural enemies—other than man...
...Following a favorable IRS ruling in 1969, the number of physicians and surgeons filing cor porate tax returns has increased from 1,600 to 30,000 in four years...
...The tentative decisions released by Ways and Means indicate that this refined House version may go the Senate one better in the income tax treatment of executives and professionals...
...So are 348,000 doctors and 355,000 lawyers...
...One animal is surviving and prospering...
...Now everyone recalls the former Vice President's legal troubles and subsequent demise, and we know what happened to President Nixon's unyielding "executive privilege" stance, but who recalls anything of a Nelson pension reform amendment...
...The Senate Finance Committee noted in illustration that in twenty-five years a professional could amass a tax shelter of $411,000, an amount sufficient to purchase an annuity generating a "modest" $37,000 a year in retirement benefits...
...Presently only one-half of all workers in private, non-agricultural employment are covered by retirement plans...
...The tax advantages to be realized through pensions, profit-sharing, and allied schemes are heavily biased in favor of upper-income taxpayers, and here lies the rub in the current pension reform legislation...
...Under the compromise reached in the Senate, any worker aged thirty or older would have to be included in his company pension plan after one year's employment— if such a plan exists...
...Roaches share a taste for another human vice—tobacco, a fact you might want to bear in mind...
...The Senate Finance Committee reported out a rival pension reform bill (S...
...The picture tube provides him with the warmth that most cockroaches seem to crave and the paste, glue, and wire insulation afford him his food...
...Throughout its deliberations the Senate Finance Committee sidestepped the issue of putting a ceiling on the amount of annual corporate executive pensions from tax shelter sources, and only at the last moment amended its bill to include a $75,000 pension ceiling for owner-managers of closely held and professional corporations...
...Congressional staff familiar with the calendar and the history of this pension reform epic expect the House to complete debate on one or another of the surviving, competing House pension reform measures early in this session...
...In addition to workers' pension rights, there is another facet of the private pension plan movement that involves income tax treatment of various pension plan transactions...
...Senate, in a quieter arena of action, was engaged in its own mini-drama...
...It was at this point that Senator Hugh Scott, Pennsylvania Republican, pleaded the present financial plight of himself and other Senators, who, at $40,000 a year (plus perquisites), were suffering the ravages of inflation...
...It is the cockroach...
...Labor's concerns for pension reform are fairly straightforward, for the serious flaws in workers' rights under the private pension movement have become increasingly apparent to many Americans in recent years...
...About thirteen million of the covered workers now have no vesting rights whatsoever, and many others realize only partial vesting after such long terms of employment as fifteen or twenty years...
...It's such a perfect environment for him he doesn't have to venture outside of it...
...Corporations, in their generosity, could pay retired executives sums above this ceiling out of after-tax profits...
...In brief, corporation contributions to approved pensions are deductible costs in determining current corporate income taxes...
...Scott argued that the difficulty in trying to establish pension limits is that individuals indeed are treated differently in the tax statutes, depending on the degree to which they have been able to climb the economic ladder and establish their executive competence...
...The Administration proposals were relatively modest, however, reflecting the concerns of business that more meaningful private pensions also mean increased business costs...
...It was another one of those "bombshell" days of the sort that have become all too familiar in this post-Watergate era...
...The subsequent unanimous Senate vote for passage has set the stage for an eventual conference committee to reconcile differences with an alternative House-generated pension reform bill anticipated early this session...
...In fact, they like beer so much that an accepted method for doing away with them is to put out plates of beer which these insect tipsters fall into and drown...
...We have at least fifty-three varieties of cockroaches here in America, most of which live a quiet outdoor life and don't bother anybody...
...The jurisdictional dispute between the two Senate committees, which had stymied pension reform legislation in 1972, was resolved last September...
...Such was the Senate Finance Committee's price tag for securing workers' pension rights...
...Moreover, the $75,000 limitation would contain a cost-of-living factor plus a grandfather clause to protect those executives who are already above the $75,000 pension ceiling...
...Both Nelson proposals, then, were meant to cover executives of all corporations, from the one-man professional to the multinational giants...
...The first amendment would place a $45,000 per year pension lid on annual retirement income from tax shelter sources with any additional benefits to come out of profits...
...The Committee estimated that such equalization of these tax loopholes for the wealthy by "leveling-up" would cost the Treasury an additional $320 million a year revenue loss, presumably to be made up by lower-income taxpayers...
...Physicians, lawyers, architects, and other professionals who band together in so-called "profes sional corporations" are able to take advantage of the same tax angles long available to other corporations, including all the tax avoidance inherent in corporate pension plans...
...With the principal Nelson amendment dead, the Senate in its consummate wisdom then extended to all corporations the proposed ceiling of $75,000-a-year pensions from tax deductible monies, with only Senators James Buckley, New York Conservative, and Paul Jones Fannin, Arizona Republican, dissenting...
...More than thirty million workers are waiting for that day...
...So much for little) for workers' rights...
...Other taxpayers will cough up the estimated additional $175 million a year that professionals would enjoy with this additional tax break alone...
...The limit on tax deductible contributions to finance personal or corporate pensions would be retained at that amount necessary to fund a single-life annuity pension of $75,000 a year, but the Committee in effect would permit retirement on 100 per cent of highest earned income up to $75,000...
...Then the proposal goes to conference committee for reconciliation with the rival Senate omnibus bill...
...All in all, the net effect of these income tax provisions has been the creation of highly profitable income tax avoidance plans for select corporation executives...
...12272) introduced late in 1971 contained some vesting and funding provisions for private pensions that would have nudged the pension movement in the direction of ensuring greater worker rights...
...The permissible annual tax deduction ceiling of $1,250 for these self-employed businessmen and professionals under the 1962 "Keogh Act" was doubled to $2,500 in 1967...
...Since roaches are thought to carry the pathogenic bacteria from about forty of the world's most unpleasant diseases some homeowners may want to have recourse to insecticides...
...The pension reform issue was complex enough, however, and the stakes too high, to permit the Williams-Javits proposal to go unchallenged from other quarters of the Senate during the 1972 and 1973 sessions...
...The interest and other earnings generated by pension trust funds (with assets of more than $150 billion in 1972) are sheltered from current taxes...
...A second concern over worker pension protection is that of vesting of earned pension credits, should the worker, for whatever reasons, sever employment with his employer...
...The only liberal defections were Alan Cranston and John Tunney of California, and Abraham Ribicoff of Connecticut...
...one can only speculate on the impact of large-corporation influence within their respective states...
...The Securities and Exchange Commission did a random survey of pension plans in 1972...
...Rather than closing the barn door to further erosion of the income tax base, the Senate seems to advocate the "let the horses run" philosophy—at least when it comes to doctors, dentists, lawyers, and other professionals...
...SENATOR GAYLORD NELSON in the U.S...
...Indeed, this planet has provided this sweet critter with such a supportive environment that there are now some 7500 species of cockroaches waxing fat in every part of the globe...
...Senator Gaylord Nelson in mid-September proposed two amendments on the Senate floor...
...The never-ending Robert N. Schoeplein is an associate professor of economics at the University of Illinois in Urbana...
...The ensuing compromise altered some details in those sections dealing with workers' pension rights, and the resultant omnibus bill also embraced the Senate Finance Committee's tax reform features...
Vol. 38 • March 1974 • No. 3
