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Friday, January 23, 2009

Loophole Boosts Execs' Pensions

A change in federal disclosure requirements has revealed that some companies are inflating the value of retirement plans for—guess who?—top executives. By converting pensions, which generally pay out in installments over a retired employee’s lifetime, to a lump-sum payment, CEOs can increase the value by 10% to 40%, netting millions of extra dollars even as average workers’ 401(k)s plummet alongside the markets, the Wall Street Journal reports.

“It’s a sneaky way to give executives larger pay,” says one Senate pension expert. For instance, one Hartford Insurance exec whose pension is valued at $27 million could boost his lump-sum payout to $37 million. Companies run pensions through a complicated formula by which they can legally manipulate certain variables, producing outsize payouts. The inflation serves to compensate for increased taxes associated with lump-sum offerings, they say.

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