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jobs with justice
Report Details How Rich CEOs Avoid Taxes on Retirement Funds as Their Employees Struggle
"Nothing but the power of corporate leaders to rig rules in their favor can explain this double standard."
May 18, 2023
Millions of people in the United States have little to nothing in retirement savings, a consequence of low-wage jobs that give workers minimal room to stash money away.
Meanwhile, at the end of 2021, the nation's top CEOs held an estimated $9 billion in rapidly growing special retirement accounts that aren't available to their employees—a double standard established by the U.S. tax code.
That double standard is the subject of A Tale of Two Retirements, a new report published Thursday by the Institute for Policy Studies (IPS) and Jobs With Justice. The report says that while "ordinary employees with access to 401(k) plans face strict limits on the amounts they can set aside, tax-free, for their golden years," highly paid executives of major corporations "have unlimited tax-deferred compensation accounts" known as top hat plans.
"The sections of the U.S. tax code related to employer-provided, tax-deferred retirement accounts impose one set of strict rules on ordinary workers and another set of far more flexible rules for corporate top brass," the report notes. "Employees with 401(k) plans face hard caps on the amounts they can set aside in these accounts every year. By contrast, Section 409A of the tax code allows top corporate executives to place unlimited amounts in special 'non-qualified tax-deferred compensation' accounts."
The funds in such plans are only taxed when they are withdrawn, allowing executives to reap the benefits of years of investment returns tax-free.
The new analysis shows that "at more than 20 low-wage employers, executives have sufficient deferred compensation funds to generate monthly retirement checks larger than their workers' median annual pay," pointing specifically to Walmart CEO Doug McMillon (who held over $169 million in his deferred compensation account at the end of last year) and former Home Depot CEO and current board chair Craig Menear (who has nearly $15 million in a deferred compensation account).
Home Depot employees aren't nearly as well-positioned for retirement. According to the researchers behind the new report, 53% of those eligible to participate in Home Depot's 401(k) plan have zero balances. Menear's top hat account balance is "enough to generate a monthly retirement check three times larger than the company’s median worker pay of just $30,100," the report notes.
The executive with the largest top hat account among S&P 500 company heads is Paul Saville, CEO of the homebuilding giant NVR, Inc. At the end of 2022, Saville held $488 million in his deferred compensation account—which could yield $3 million a month in retirement checks for the rest of his life.
"That's 1,513 times as much as a typical American retiree could expect to receive in monthly Social Security and 401(k) benefits," IPS and Jobs With Justice note.
Sarah Anderson, global economy director at IPS and a co-author of the new report, said that "there's no rational argument for allowing wealthy executives to shelter unlimited amounts of compensation from taxes while ordinary workers have strict limits on their annual 401(k) contributions."
"Nothing but the power of corporate leaders to rig rules in their favor can explain this double standard," Anderson argued.
"Perhaps most importantly, we need to expand Social Security, the key pillar for retirement security for most Americans, particularly low- and moderate-income families who receive little to no tax benefits."
For workers under the age of 50, the annual 401(k) contribution limit is $22,500 in 2023—a ceiling that the overwhelming majority of workers with access to a 401(k) won't hit.
"Nationwide, just 35% of working-age adults have tax-deferred 401(k)-type defined contribution plans through their employer and another 13% have defined benefit or cash balance plans. Some 42% of Americans age 56-64 have zero retirement account savings, according to the U.S. Census Bureau," the new report observes. "Americans who are unable to save for retirement need to rely on Social Security, which pays an average monthly benefit of $1,784, as of March 2023."
The report adds that while companies "often match a portion of employee 401(k) contributions," that benefit is "meaningless for the many low-wage workers who cannot afford to set aside any of their wages."
Furthermore, roughly half of U.S. workers in the private sector have no access to an employer-provided retirement plan.
"For decades now, large U.S. corporations have been making workers' retirement futures less secure by abandoning traditional pensions in favor of 401(k) plans," the report points out. "In 1984, more than 30 million Americans had defined benefit pensions through which employers bore the financial risks for their workers' retirement security. By 2020, that number had declined to just 12 million, and private sector workers were approximately 3.5 times as likely to have a defined contribution plan as a traditional pension."
IPS and Jobs With Justice highlight a number of potential policy changes that could help combat the stark and worsening retirement divide between ordinary workers—who are facing a full-fledged retirement income crisis—and executives, including changes to the tax provisions that let rich executives shelter their compensation.
"Perhaps most importantly, we need to expand Social Security, the key pillar for retirement security for most Americans, particularly low- and moderate-income families who receive little to no tax benefits," the report states. "Funding for expansion could come from lifting the wage cap on payroll taxes so that CEOs and other high earners pay roughly the same share of their total income into the Social Security fund as ordinary workers."
Scott Klinger, report co-author and senior equitable development specialist at Jobs With Justice, said that "rather than giving corporate CEOs unfair special retirement tax benefits not available to those they employ, Congress should eliminate the cap on payroll taxes paid by corporate executives so that Social Security benefits can be strengthened, especially for the 40% of American workers for whom Social Security is their sole retirement income."
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Critics Say Amazon Must Improve After Leaked Doc Reveals 'Looming Labor Crisis'
"Maybe it's time to improve working conditions and allow your workers to unionize," said Lorena Gonzalez Fletcher of California Labor Federation.
Jun 18, 2022
After Recode on Friday revealed an internal document from last year warns that "if we continue business as usual, Amazon will deplete the available labor supply in the U.S. network by 2024," critics of the online retail giant's labor practices renewed calls for improvement.
"I guess treating people like they're expendable has consequences, who knew?"
Journalist Jason Del Rey's reporting on the "looming labor crisis" comes as the company is under fire for battling its workers' organizing efforts, including the historic victory of the Amazon Labor Union at a Staten Island facility earlier this year.
"This is crazy. Amazon burns through workers so fast there might be none left soon," tweeted New York City organizer and writer Joshua Potash, adding that he "can't imagine how anyone defends a system that treats people like expendable parts like this."
Retired journalist Laura Keeney said that "if you need to better understand how Amazon burns through workers, here you go. I guess treating people like they're expendable has consequences, who knew?"
California Labor Federation's Lorena Gonzalez Fletcher told Amazon that "maybe it's time to improve working conditions and allow your workers to unionize."
\u201cThe problem with capitalism is that eventually you run out of other people's labor\u201d— The Debt Collective \ud83d\udfe5 (@The Debt Collective \ud83d\udfe5) 1655483766
"It turns out that low wages and unsafe working conditions are [Amazon's] biggest labor problem, not unions," declared Doug Bloch, political director for Teamsters Joint Council 7. "Gee, aren't those the problems that workers join together in unions to fix?"
Longtime labor reporter Steven Greenhouse similarly suggested that "IF AMAZON LETS ITS WAREHOUSES UNIONIZE, they could become far less grueling places to work and worker turnover could decline greatly."
Pointing out that "workers have long warned Amazon that its 'churn and burn' would cause the company to 'run out of workers,'" Jobs with Justice also said that "maybe if Amazon stopped fighting workers organizing unions, they could build a safer, healthier workplace and this would be less of a problem."
\u201cAmazon relies on a high turnover so that workers they break are swiftly replaced and sweat shop survivors are booted before they unionize.\n\nNow that formula hits a wall, as @Amazon itself fears running out of workers to break.\n\nStory @DelRey #AmazonHurts \nhttps://t.co/OCzzsBSl1y\u201d— Athena Coalition (@Athena Coalition) 1655488783
According to Del Rey--who noted that an Amazon spokesperson didn't deny the report's findings but declined to comment--the company "was expected to exhaust its entire available labor pool in the Phoenix, Arizona, metro area by the end of 2021, and in the Inland Empire region of California, roughly 60 miles east of Los Angeles, by the end of 2022."
"The internal research also identified the regions surrounding Memphis, Tennessee, and Wilmington, Delaware, as areas where Amazon was on the cusp of exhausting local warehouse labor availability," he continued, highlighting the accuracy of the company's models for staffing shortages ahead of Amazon Prime Day shopping event in June 2021.
Amazon's own data shows that its attrition rate was 123% in 2019 and 159% in 2020, which are high figures compared with the federal government's estimates for those two years in the U.S. transportation and warehouse sectors (46% and 59%) and retail (58% and 70%).
\u201cStill baffled by the Amazon policy of firing someone to rehire in 90 days.\n\n\u201cWe would love you back in 90 days,\u201d Pagan says the HR staff member told him. In the meantime, Pagan should \u201cdo some GrubHub or Uber,\u201d the HR employee said.\u201d— Jason Del Rey (@Jason Del Rey) 1655476883
The document "provides a rare glimpse into the staffing challenges" faced by a company whose employees "have long complained of stresses unique to Amazon's workplace, from the pace and repetition of the labor to the unrelenting computerized surveillance of workers' every move to comparatively high injury rates," Del Rey wrote. "The leaked internal findings also serve as a cautionary tale for other employers who seek to emulate the Amazon Way of management."
The journalist asserted that the report "reads like an attempted wake-up call" and outlined the projected impacts of some solutions it offers, including raising wages, changing termination or retention policies, improving the hiring process, choosing new warehouse locations in areas with significant labor pools, and increasing automation.
Noting that Amazon's new CEO, Andy Jassy, has claimed the company is "not close to being done in how we improve the lives of our employees," Del Rey concluded that "as the internal report shows, doing so should no longer be optional for Amazon; it's an imperative."
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'Win for Workers Across America': Amazon Union Victory Inspires Progressives
"For everyone in the labor movement, it's time to dramatically rethink what we imagine is possible," said one organizer.
Apr 01, 2022
Progressives hailed Friday's unionization vote by employees at an Amazon warehouse in New York City as a historic victory for workers across the United States and an inspiring call to action for others seeking to organize.
"This is the catalyst for the revolution."
In what's being described as a "tremendous upset" of "David versus Goliath" proportions, employees at Amazon's JFK8 warehouse in Staten Island--led by fired worker Chris Smalls--defeated a multimillion-dollar union-busting effort by one of the world's largest and most powerful corporations and voted to form the Amazon Labor Union (ALU).
"It's official," ALU tweeted after the vote. "Amazon Labor Union is the first Amazon union in U.S. history. Power to the people!"
"This is the catalyst for the revolution," Smalls, the ALU organizer and president, said while celebrating the vote.
Erica Smiley, executive director of the labor advocacy group Jobs With Justice, said in a statement that "this triumphant union victory over Amazon represents a watershed moment in the labor movement."
"Amazon finally got what it deserved today after the trillion-dollar company ignored the demands for safer working conditions in 2020 from its workers exposed to Covid and retaliated against Christian Smalls and others who led a walkout," she said.
Smiley added that "the closeness of the election in Bessemer, Alabama"--where Amazon employees are also fighting to form a union--"is a further indication of the genuine sea-change for all Amazon workers and workers everywhere."
Varshini Prakash, executive director of the youth-led climate group Sunrise Movement, cheered Friday's "win for workers across America," while hailing "worker victories at giant corporations like Amazon and Starbucks" as "part of a growing wave of activism that is paving the way for a more just economy."
Our Revolution, the progressive political action group spun out of Sen. Bernie Sanders' (I-Vt.) 2016 presidential campaign, called the results of the vote "a massive victory" and "an inspiration for working-class people across the U.S."
\u201cVICTORY: Amazon workers at the JFK8 warehouse in Staten Island have voted to create the first Amazon union in the country!\n\nThis is a massive victory for @amazonlabor, and an inspiration for working class people across the U.S. When labor organizes, labor wins! #NotMeUs\u201d— Our Revolution (@Our Revolution) 1648830127
Dennis Hogan, who rose to prominence organizing a graduate students' union at Brown University, tweeted: "Doubtless there will be many takes on the Amazon Labor Union's historic and little-anticipated victory in the election today. But I think a lot of it boils down to this: for everyone in the labor movement, it's time to dramatically rethink what we imagine is possible."
"There's probably never been a better time to take big risks and win," he added. "Who knows how long this window of militancy and possibility will last. Months? Years? Impossible to say. But if you're not making big moves now you risk missing it."
\u201cAmazon workers in Staten Island brought da motherfuckin' ruckus straight to Jeff Bezos\u2019 doorstep. This @amazonlabor victory is absolutely incredible\u2014they\u2019re the first to take on this giant and win, but they most definitely will not be the last \ud83d\udd25\u201d— Kim Kelly (@Kim Kelly) 1648830799
Eric Blanc, an assistant professor of labor studies at Rutgers University and author of Red State Revolt: The Teachers' Strike Wave and Working-Class Politics, tweeted that "the iron is hot--unions urgently need to seize the moment for new organizing."
Some labor advocates reported increased interest from workers seeing to form their own unions.
Others, including numerous Democratic U.S. lawmakers, called on Congress to pass the Protect the Right to Organize (PRO) Act, legislation whose provisions include penalties for employers who engage in union-busting activity.
"Fantastic news," Rep. Ro Khanna (D-Calif.) tweeted about the ALU vote. "Now let's get the PRO Act to [President Joe Biden's] desk to protect the right of all workers to organize."
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