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Another plant closing, another distressed pension plan abandoned by the private sector. As the Detroit Free Press recently reported, Toyota is shuttering a former joint-venture plant with GM in Fremont, Calif., leaving behind $131 million in unfunded pension liabilities and 5,800 United Auto Workers in the lurch.
Thankfully for them, the Pension Benefit Guarantee Corporation will step in to make up most of the missing money. But the automakers’ behavior extends a dangerous pattern with potentially frightening implications for U.S. taxpayers.
The Pension Benefit Guarantee Corporation (PBGC) is a little-known federally chartered organization that protects workers’ retirements when their companies fail to fully fund their pension plans.
Congress created the PBGC in response to private sector fraud. Companies — most famously the Studebaker Corporation — hired workers with promises of guaranteed lifetime retirement annuities, only to shut down without having set aside the resources to pay their obligations. Workers have been protected from such blatant corporate abuse since the Employee Retirement Income Security Act passed in 1974. But the law has not done much to change company behavior. In fact, looking at recent history, it seems like corporate abuse has only gotten worse.
As the Government Accountability Office has reported, major companies routinely offer multi-million dollar compensation packages to their executives while massively underfunding their workers’ pension plans. Some of the cases are outrageous.
The GAO report profiles an airline company that missed nearly $1 billion in pension plan contributions, leading to an unfunded pension liability of $7.8 billion. When the company declared bankruptcy in December 2002, some retirees saw their pensions evaporate. GAO investigators spoke to one pilot who saw his pension cut by two-thirds after the PBGC took over his plan.
While workers suffered, management thrived. As their company terminated retirement plans and broke pension obligations, the top three executives took home at least $55.5 million in compensation. Indeed, the CEO had only joined the airline after receiving a $3 million signing bonus and a special $4.5 million supplemental retirement trust “in consideration of retirement benefits foregone” as a result of switching jobs.
Although the GAO report does not use names, a CREW investigation strongly suggests United Airlines is the profiled corporate malefactor.
As if such hypocrisy weren’t bad enough on its own, this irresponsible behavior puts all American taxpayers at risk. Thanks to the multiple billions of dollars in unfunded pension liabilities abandoned by major corporations like Bethlehem Steel, the PBGC now operates at a $22 billion deficit. Although it is not explicitly backed by the full faith and credit of the U.S. government, analysts believe that letting the PBGC default would be politically unfeasible.
If Congress bails the PBGC out, taxpayers will be on the hook. Companies know this, and so can strategically underfund their pensions, relying on the social safety net to avoid accountability for their unethical behavior.
It’s a painful cycle. Until we find a way to break it, we can chalk another one up to the corporate exploitation of public virtue for private gain.
As this Politico article explains, the issues of financial regulation and health care reform have fueled spending on lobbyists to work the halls of Congress. Efforts to strengthen oversight of financial institutions are an example of what's driving this:
[JPMorgan Chase] spent more than $5 million lobbying Congress last year and has already doled out nearly a half-million dollars in campaign donations to curry favor with lawmakers from both parties.
Among the key issues for the Wall Street giant is to kill or substantially revamp President Barack Obama’s proposed bank tax, which could cost the company about $1.5 billion a year ...
JPMorgan is hardly alone in dispatching its lobbyists to limit the damage.
Bank of America has spent nearly $4 million on lobbyists and donated more than $650,000 to lawmakers. But it, too, is facing a more than $1 billion annual payout if the bank tax is approved.
In a global economy, corruption also becomes global. And a lot of that corruption occurs when corporations offer bribes or kickbacks to government officials or other influential people in countries where they're trying to sell their products or services. But according to the magazine Business Ethics, the Obama administration is devoting more resources to fighting this corruption:
“It’s my view that the U.S. government – and not just the Justice Department, but the U.S. government more broadly – is going to focus on international corruption in a more comprehensive and even more rigorous way than it has in the past,” said Mark Mendelsohn, the Justice Department’s lead criminal prosecutor for violations of the Foreign Corrupt Practices Act (FCPA).
... More cases are being built against individuals as well as companies, including senior and mid-level executives and third-party representatives. Total individual prosecutions increased to 44 in 2009 from only 6 in 2006, according to Mendelsohn.
... Investigators are no longer waiting for companies to voluntarily disclose FCPA violations and are instead using far more aggressive law enforcement techniques.
It's heartening to see tougher enforcement of laws against corruption internationally. Let's hope it's the start of a trend.
Data from an annual report by the IRS provides some interesting revelations about America's top 400 income-earners -- many of whom occupy seats in corporate office suites. To make the top 400, a taxpayer had to have an annual income of more than $138.8 million. In this blog post, Robert Borosage of the Campaign for America's Future offers his take:
Yes, there is a class war, Warren Buffett once said, and my class is winning. The IRS study of taxes paid in 2007 makes his point. The top 1% of taxpayers . . . paid taxes at a rate of 16.6%. As Buffett says, their secretaries pay a higher rate.
The Wall Street Journal points out that the share of the nation's income that these top 400 Americans earned is now "three times the slice they got in the 1990s."
A month ago, the Supreme Court's decision in the Citizens United case opened the door for corporations to dramatically increase their influence in elections. Now, according to TPMMuckraker's Zachary Roth, corporate officials are getting a primer on how to do so while staying below the radar screen:
In the wake of last month's Citizens United ruling, a powerhouse Washington lobbying firm is informing its corporate clients on how they can use middlemen like the Chamber of Commerce to pour unlimited amounts of money into political campaigns, while maintaining "sufficient cover" to avoid "public scrutiny" and negative media coverage.
Click here to read the rest of this blog post.
It’s hard to be surprised about anything that is done by Richard Berman, the over-the-top P.R. maven who has attacked the minimum wage, Mothers Against Drunk Driving, and various consumer health campaigns. But Americans who care about transparency and economic fairness should be concerned about the innocent-looking, national advertising blitz that one of Berman's industry-funded front groups is carrying out.
It's unknown how much corporate money is behind the "Defeat the Debt" ad campaign by Berman's Employment Policies Institute (EPI). But the campaign must have very deep pockets because it recently bought a premium-priced, 30-second TV slot during the Super Bowl. The Saints won that game, but there is nothing saintly about Berman's agenda. In fact, CBS's "60 Minutes" reported that Berman takes pride in being nicknamed "Dr. Evil."
Click here to continue reading this post.
When he was chief executive of Merrill Lynch, John Thain paid out $3.6 billion in bonuses to Merrill employees just before the investment bank was sold to Bank of America. Thain also spent more than $1 million to redecorate his office at Merrill — a redecoration that took place even as the company was sliding deeper into a financial hole.
So who would want to hire a CEO who had made highly disturbing decisions like these? CIT Group, that’s who. This week, Thain took the helm at CIT Group, and his new gig will pay him handsomely.
According to the Washington Post, CIT Group will pay Thain an annual salary and stock package worth $6 million. And that does not include the bonuses for which he will be eligible.
Thain’s new job is an example of the stories and events that explain why the American people view corporate officials as being so out of touch with reality.
The widespread complaints about Toyota’s sticky accelerators are prompting criticism that federal regulators may be relying too heavily on automakers’ explanations and assurances. Much of this criticism is aimed at the National Highway Traffic Safety Administration (NHTSA).
According to the Washington Post:
During agency reviews, officials have at times minimized or simply rejected consumer accounts of what happened in favor of the manufacturers' assessments, records show.
… “Unfortunately, if the manufacturer says it's OK, then it's OK with them," said Jeffery A. Pepski, 54, a Minnesota driver who unsuccessfully petitioned the NHTSA with a complaint that his Lexus ES 350 accelerated unexpectedly on his way home from work last year. "The agency follows that logic all the way through their investigations. They’re not really investigating with an open mind.”
NHTSA officials said Thursday that the agency does not rely solely on the manufacturers during investigations. The officials said the NHTSA has a staff of professional investigators who hear from drivers and companies. They take the cars in question on road tests, interview police and ensure that “all avenues are explored,” the officials said. Moreover, even critics concede that human memory is fallible.
… The agency and the manufacturers know each other well. Two top officials in Toyota's Washington office, which deals with the NHTSA, are former agency employees. It is a relationship “built on trust,” said Nicole Nason, who was the agency's administrator from 2006 to 2008.
Clarence Ditlow, director of the Center for Auto Safety, says the agency appears to have been too willing to accept Toyota’s version of events. “It’s difficult to believe that Toyota doesn’t have information on what’s causing the failures,” he said. “When you have a recalcitrant manufacturer like Toyota, [NHTSA] should use their subpoena authority to get answers.”
Rep. John Kline (R-MN) organized an issue forum in January that criticized President Obama for being too supportive of labor unions. The forum was advertised as an event exploring the impact that the administration’s policies are having “on the current labor market and the rights of employees …” But one of the experts invited to speak at this forum was an odd choice.
TPM Muckraker explains why organizers invited Stephen Worth, the CEO of a Pennsylvania construction firm called Worth & Company:
Worth was there to offer the perspective of an ordinary American business owner, frustrated by the administration's alleged bias toward labor unions.
But one can only hope that Worth is not an ordinary business owner:
Last year, according to an order examined by TPM Muckraker, the Pennsylvania Department of Labor found that Worth & Company had violated the state’s Prevailing Wage Act by failing to maintain accurate wage records; by repeatedly employing too many lower-paid apprentices, rather than more highly paid workers; and by paying apprentices less per hour than the prevailing rate due, among other violations. The state found that Worth & Company’s actions "were willful and with a knowing disregard of the rights of its workers.”
In turn, Worth responded by filing legal action against the department. In a legal settlement, he agreed to pay more than $138,000 to the underpaid workers, TPM reports. He also agreed that his firm would not be allowed to receive new state contracts subject to the wage law until November 2010. Under the settlement, Worth did not make any admission of violating the Prevailing Wage Act.
Well, not exactly. A public relations firm in Maryland is dramatizing its concern over the Supreme Court’s recent decision on campaign finance by running for Congress.
Of course, a corporation cannot hold a public office, but the public relations firm called Murray Hill Inc. has launched this campaign to highlight publicly what makes the court’s decision in the Citizens United case so disturbing — the tremendous power it gives corporations over elections.
In a statement on its website, Murray Hill Inc. declared:
“Until now, corporate interests had to rely on campaign contributions and influence peddling to achieve their goals in Washington. But thanks to an enlightened Supreme Court, now we can eliminate the middle-man and run for office ourselves.”
Murray Hill Inc.’s “campaign” will underscore what CREW Executive Director Melanie Sloan has said about the Supreme Court decision:
“We are moving to an age where we won’t have the senator from Arkansas or the congressman from North Carolina, but the senator from Wal-Mart and the congressman from Bank of America.”
Murray Hill Inc. is using humor to make a serious point. The firm says on its website that it is willing to spend “top dollar” in its campaign. Why? Because:
“It’s our democracy. We bought it, we paid for it, and we’re going to keep it.”
Click here to view Murray Hill Inc.’s campaign video.