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The Nation

Executives' Pensions Are the Deal of a Lifetime

January 29, 2006|Kathy M. Kristof | Times Staff Writer

Like a growing number of companies, Countrywide Financial Corp. of Calabasas is phasing out its pension plan to save money, and employees hired since Jan. 1 won't be eligible for lifetime income in retirement.

But new Countrywide executives still qualify for a special executive pension -- one that will pay Chief Executive Angelo Mozilo up to $3 million a year for life.

First American Financial Corp. of Santa Ana also has one plan for those in the cubicles and one for those in the executive suites. The workers saw their pension plan frozen in 2001. But a special plan for executives will pay Chief Executive Parker S. Kennedy nearly $1 million a year for life if he remains with the company until age 65.

Major corporations throughout the country are abandoning their pensions, saying the benefits are too costly and less important, with the widespread adoption of individual retirement accounts such as 401(k) plans.

But many of these same companies are retaining special pension plans for top executives, saying they would lose the top brass to rivals without them.

"We view this type of program as a standard and necessary component in recruiting and retaining talented top executives," Kelly Dunmore, vice president of employee benefits at First American Financial, said in a statement.

Others view it as a double standard.

"These executives earn what an entire neighborhood of typical families make collectively," said Karen Friedman, policy director at the Pension Rights Center, a nonprofit advocacy group. "They don't need this money for retirement. These plans are just outrageous."

The Times reviewed public filings that spell out pension terms for the 50 largest public companies, ranked by sales, based in California. Twenty-five of these firms reported having a traditional pension plan at some time, but today only nine still promise lifetime retirement benefits to all employees.

Of the 16 other companies, six never offered pensions to the rank and file, only to executives. Three other firms, including Hewlett-Packard Co., are phasing out pensions but "grandfathered" executives and regular workers alike into existing plans.

The remaining seven firms retained special lifetime pensions for top executives but eliminated them for the rank and file.

At Sempra Energy, for example, the board approved management's proposal to convert the pension plan to a "cash-balance" system in 1998.

Cash-balance plans allow workers to build nest eggs for retirement but do not guarantee a steady monthly income like a traditional pension.

The company's board, however, retained the special executive pension. Under that plan, Chief Executive Stephen L. Baum should get nearly $2 million a year for life in retirement, according to Sempra's public filings.

The Sempra board's compensation committee recommended the plan, believing that the special pension would be needed to compete for the best executives, said company spokeswoman Jennifer Andrews.

"All of our compensation packages are designed to attract and retain top-quality talent," she said. "They are in line with what other Fortune 500 companies are doing."

In addition to Sempra, Countrywide and First American, other big California companies that implemented this dual standard over the last decade were McKesson Corp., Northrop Grumman Corp., Edison International and Clorox Co.

McKesson declined to comment. Countrywide said that because of competitive pressure in the industry, it no longer made business sense to offer pensions to new employees, and that the special executive plan was under review.

Other companies said the executive pensions were needed to be competitive.

Patrick McGurn, executive vice president of Institutional Shareholder Services, questioned that assertion. Because the plans have not been well disclosed in the past, he said, it's hard to say whether executives choose one company over the next because of the rich pension plan.

"I think you are creating potential problems with productivity, morale and all sorts of other issues," said McGurn, whose group provides research for major shareholders, such as mutual funds. "If companies are adopting one set of rules for the senior executives and another for the rank and file, that sort of disparate treatment is going to emerge in other areas. It's got to affect how workers view their employer. It clearly sends a message to the worker about what their value is to the company relative to the executive."

Even so, surveys suggest that two-tiered systems are becoming more common in corporate retirement plans nationwide.

Just 19% of wage and salaried workers are active participants in an ongoing pension plan, according to the Bureau of Labor Statistics, compared with 35% in 1980.

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