Sens. Bernie Sanders of Vermont and Chris Van Hollen of Maryland have introduced legislation they say will free up $15 billion to fund struggling multiemployer pension plans by eliminating the tax advantages of executive deferred-compensation retirement plans.
The proposed bill, called the CEO and Worker Pension Fairness Act, is in response to a recent Government Accountability Office (GAO) report commissioned by Sanders. The report found that 80% of the 500 largest US public companies provided executive retirement plans to approximately 2,300 top executives, totaling about $13 billion in accumulated plan benefits. The $15 billion in savings claimed by the bill’s sponsors comes from an estimate of a similar provision, although Sanders’ press office did not respond to a request for the source of that estimate.
“It is outrageous that a corporate executive in America can get unlimited, special tax privileges on hundreds of millions of dollars in savings, while an ordinary worker can only get tax deferment of up to $19,500 on a 401(k),” said Sanders in a statement. “We are going to end these tax breaks for CEOs and use that money to protect 1.7 million workers who are worried about a decent retirement as they face instability in their current pension plans.”
The bill would direct all revenue raised from the changes to the tax treatment of nonqualified deferred compensation from the Treasury to the Pension Benefit Guaranty Corporation (PBGC) to shore up multiemployer pensions. According to the PBGC, its multiemployer program is projected to run out of funds by 2025.
According to the GAO report, CEOs accumulated more executive retirement plan benefits than the next four highest compensated executives. It said that as of 2017, CEOs had accumulated an average of $14 million in executive retirement plan benefits, while CFOs had accumulated an average of $3 million, and the next three most highly compensated executives accumulated an average of $3.4 million in plan benefits.
The proposed legislation would also require the Department of Labor (DOL) and the Internal Revenue Service (IRS) to provide oversight and transparency for executive retirement plans. The IRS oversees executive retirement plans for compliance with federal tax laws, such as ensuring that key executives are taxed on deferred compensation in certain cases where that compensation has been set aside, such as when a defined benefit pension plan sponsor is in bankruptcy.
“However, IRS audit instructions lack sufficient information on what data to collect or questions to ask to help its auditors know if companies are complying with this
requirement,” said the GAO report. “As a result, IRS cannot ensure that companies are reporting this compensation as part of key executives’ income for taxation.”
And the DOL oversees the deferred-compensation plans to ensure that only eligible employees participate in them since the plans are excluded from most of the federal protections that cover retirement plans for rank-and-file employees. The DOL requires companies to report the number of participants in the plan; however, the GAO said the one-time single page filing does not collect information on the job title or salary of executives, or the percentage of the company’s workforce participating in the plans.
“Such key information could allow DOL to better identify plans that may be including ineligible employees,” said the report. The GAO also said that without reviewing its reporting requirements to ensure adequate useful information, the DOL may continue to “lack insight” into the make-up of the plans.
“Our bill sends a message to corporate America: We will no longer tolerate a system in which CEOs are showered with endless tax breaks,” said Sanders. “We are ending a two-tiered system that gives special tax breaks to billions of dollars in corporate executives’ savings while letting workers’ pensions disappear.”