Executive retirement plans are the latest tax break for the wealthy to draw the attention of Bernie Sanders.
Senators Sanders (I-Vt.) and Chris Van Hollen (D-Md.) introduced new legislation Feb. 27 to end tax advantages that allow CEOs to contribute unlimited amounts to special executive retirement plans, which they note are subject to almost no reporting requirements or oversight from the Department of Labor or Internal Revenue Service.
Their bill, the CEO and Worker Pension Fairness Act, would use the estimated $15 billion in federal tax revenue recovered from eliminating these tax breaks for executive retirement plans to help secure ordinary workers’ pensions that are at risk in multiemployer plans. All revenue raised from the changes in the proposed bill would be transferred to the Pension Benefit Guaranty Corporation.
It should be noted that $15 billion would not go all that far toward addressing the pension plan funding gap. As of fiscal 2017, state pension plans had a combined $1.28 trillion deficit.
In addition to limiting the tax deferral for nonqualified deferred compensation (NQDC), the bill would also require the Department of Labor and the IRS to provide oversight and transparency for executive retirement plans.
For Sanders, a frontrunner for the Democratic presidential nomination who is campaigning on a heavily “billionaires should not exist” stance, this is yet another initiative, such as his campaign’s wealth tax proposal, intended to decrease the wealth gap.
“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 401k,” said Sanders. “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.”
Senator Van Hollen said Republicans and Democrats alike have called for ending this particular tax break, and added it’s past time to get it done.
“While everyday Americans face limitations on the tax benefits they can receive from investing in their retirement plans, multi-millionaire CEOs of large corporations have a convenient loophole,” Van Hollen said. “Providing the super-rich with a government-subsidized retirement account above and beyond a 401k is indefensible.”
Executive retirement plans allow CEOs and other top executives to defer income to put into the account, along with stock options. Because the money is not taken as income, taxes are also deferred until withdrawal. Sanders’ bill would require participants to pay taxes on income deferred into the account sooner and impose more reporting requirements. It would also change how stock options are taxed.
GAO report cited in bill
Their bill introduction comes in response to the findings of a newly released Government Accountability Office (GAO) report that Sanders commissioned, “Private Pensions: IRS and DOL Should Strengthen Oversight of Executive Retirement Plans.”
GAO reviewed data on the five highest-paid employees at S&P 500 companies and found that 2,300 top executives have more than $13 billion saved in these accounts. The average CEO has about $14 million in their account, with some CEOs contributing more than $200 million each.
GAO also found little to no oversight on these plans, which are exempt from the Department of Labor’s Employee Retirement Income Security Act (ERISA) reporting requirements. Corporate executive savings plans are only required to submit a one-time, single-page filing statement when created.
“Our bill sends a message to corporate America: We will no longer tolerate a system in which CEOs are showered with endless tax breaks. Today, the wealthiest 400 Americans own $2.9 trillion in wealth—the size of the entire annual economy of the United Kingdom. These 400 billionaires pay a lower rate in taxes than the millions of Americans who have worked their whole lives for a modest pension and are still struggling. 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. It is time to shore up the retirement security of our middle class and working families,” Sanders said.