Retirement Heist

WHEN HENRY SCHACHT was delivering the bad news to Lucent retirees, there was one retiree in the room who wasn’t going to feel the pain. That was Schacht himself. As a former CEO, Schacht had accrued a small fortune, joining the club of executives with enough retirement wealth not only to retire to an island but to buy it.

While Lucent and other companies were cutting benefits for hundreds of thousands of retirees to the bone, they were lavishing increasingly enormous sums on top management. This isn’t simply an issue of disparity; it’s a transfer of wealth. Billions of dollars earmarked to pay pensions and health care benefits to retirees were consumed, one way or another, by management teams who profited from the short-term income lift these maneuvers generated.

The dismantling of retiree plans did something more than boost profits. It helped fuel the growth of a parallel universe of executive pensions and benefits. Largely hidden, these growing executive retirement liabilities are slowly replacing pensions and retiree health obligations on corporate balance sheets.

The retirement party got started in the early 1990s when Congress, in a futile attempt to rein in executive pay, capped the tax deduction a company can take for an individual’s salary at $1 million. Undeterred, managers and compensation consultants simply recharacterized a lot of compensation as “performance-based,” which isn’t subject to the deduction cap.

Compensation committees maintained that tying executive pay to performance would incentivize managers to do a good job. Whatever it may have done, executives with mountains of stock options and awards were motivated to boost earnings, whether that was accomplished by improvements in productivity, layoffs, offshoring operations, creative accounting, or cutting benefits.

Unfortunately for employees and retirees, this new era of incentive pay coincided with companies’ newfound ability to use the pension and retiree health plans to boost income. Knowingly or not, when top management ordered cuts for retirees, they were indirectly boosting their own retirement wealth.

Spiraling executive pay in turn led to spiraling executive pensions. Commonly called SERPs—supplemental executive retirement plans—these top-level pensions generally provide millions of dollars in pension benefits.

Ed Whitacre, AT&T’s former chief executive, was president of the company when it froze pensions, and slashed retiree health benefits. When he retired in 2007, he was granted the usual executive entitlements, including the use of corporate aircraft, AT&T office facilities and support staff, home security, and club memberships, plus payments to cover the taxes he pays on the benefits. Whitacre would also be paid $1 million a year under a three-year consulting contract. On top of all that, he also left with a $158 million payout. This type of retirement package, which no longer shocks people, is detailed in the SEC filings that disclose the compensation of the handful of top officers at a company. But they’re the tip of a well-hidden iceberg.

Spiraling executive pay doesn’t just lead to growing executive pension obligations. It has been creating another giant liability: deferred-compensation obligations. As pay has grown, top earners have channeled more of it into deferred-compensation plans, which enables them to postpone receiving the money and delay paying taxes on it. The deferrals grow with interest and employer contributions, tax-deferred, which further boosts the IOU.

Deferred-comp plans have been called 401(k)s on steroids, because employees contribute pay, employers typically match it, and the employees allocate the funds among a selection of investments. But there’s a critical difference: The compensation employees contribute to 401(k)s is actual cash that goes into a separate account at an outside investment firm. These “defined-contribution plans” don’t create a pensionlike liability. Deferred-comp plans do. The participant doesn’t actually receive the pay before he defers it; it is merely an IOU from his employer. Another way to put it: Employers have been putting much of their spiraling executive pay—pensions and deferred compensation—on the equivalent of a giant credit card.

SCAPEGOATS

Combined, executive legacy liabilities have grown to multi-billion-dollar obligations. General Electric owes an unknown number of executives a total of $5.9 billion in retirement, which amounts to 15 percent of the total pension liability for more than 500,000 workers and retirees. Currently, executive legacy liabilities account for 8 percent to as much as 100 percent of pension obligations at some of the largest Fortune 500 companies.

For accounting purposes, executive liabilities are no different from regular pensions and retiree health benefits. They’re debts, and can drag down earnings. There’s a critical difference, though. Unlike pensions (which employers fund) and 401(k)s (which employees fund), supplemental executive pension and savings plans are unfunded. This is due to taxes: If a company set up a pension fund for executives, it wouldn’t be allowed to deduct the money, and the assets wouldn’t grow tax-deferred.

With no pool of assets that are earning returns, which offset the annual interest cost on the debt, the IOUs for executives always have an interest cost, which can hit earnings hard. But guess which pensions get the blame?

Employers typically aggregate their regular pensions and executive pensions when reporting pension liabilities and costs, so even if the only costly pensions are for the executives, the public doesn’t know. Nor do many analysts, whose reports overstate the amount of underfunding, because the pension obligations include executive pensions, which aren’t funded. The data, which comes from SEC filings, also includes pensions at companies like Nordstrom. Its pension tables indicate that it owes $102 million in pensions and is 100 percent underfunded. That’s because the cheery shoe clerks and store managers don’t have pensions. The pensions are only for “certain officers and select employees.”

But don’t expect employers to bemoan their spiraling executive obligations. In a letter to stockholders dated March 16, 2006, the chief executive of Unisys, Joseph McGrath, blamed “higher pension expense” for the loss the company had reported the previous year. This was partly true: Financial filings show that pension expenses reduced Unisys’s earnings by $104 million.

But he left out a critical detail: Most of the increase in cost was from a half-dozen supplemental pension and savings plans for top Unisys executives. The regular pension plan had actually been a benefit to the company. From 1995 to 2001, the company’s pension plans actually increased corporate earnings—by an average of $91 million a year. That was because the income on assets set aside for regular workers’ pensions more than covered all of Unisys’s pension expense, with the remainder flowing to the bottom line. In 2003, however, Unisys started to incur pension expenses, because of investment losses, falling rates, and because its executive pensions had become so costly that the gains produced by the regular pension plan were no longer enough to make up for it.

The day after McGrath’s report to shareholders, Unisys announced that it would freeze the regular employees’ pension plan to control “the level and volatility of retirement costs.” McGrath said that “we think these changes have struck the appropriate balance between controlling our pension costs and continuing to help our employees prepare for retirement.” On balance, it was good for Unisys: Freezing the regular pensions generated a quick gain of $45 million and will add a total of about $700 million to earnings over ten years.

A variety of companies froze their pensions in 2006, taking advantage of low interest rates, which had inflated their obligations. Curtailing pensions at a time when the obligations are artificially high results in a larger drop in the obligation, and bigger gains.

Even when a company postpones the effective date of the freeze, it can reduce its obligation immediately. In early 2006, IBM announced that it would freeze the pensions of about 117,000 U.S. employees starting in 2008, citing pension costs, volatility, and unpredictability. Only by drilling into its pension filings would one notice that $134 million, or a quarter of its U.S. pension expense the prior year, resulted from pensions for several thousand of its highest-paid people. The rest of IBM’s U.S. pension expense, $381 million, related to pensions for 254,000 workers and retirees. The only U.S. pensions dragging down earnings are the executive pensions, which have continued to rise. The freeze didn’t hurt CEO Sam Palmisano’s retirement: He’ll receive at least $3.2 million a year in retirement.

Now, thanks to the pension freeze, the employee pension plan no longer has any expense: In the years since the freeze was announced, the gains from curtailing benefits have added nearly $3 billion to IBM’s income.

GM also took advantage of low interest rates to lock in a bigger liability. When the automaker announced in 2006 that it would freeze the pensions of 42,000 U.S. salaried workers, it blamed its troubles on “legacy costs,” including pensions for its U.S. workers. The move wiped $1.6 billion from GM’s pension obligations.

How costly were the pensions of GM’s workers at the time? The pension covering nearly 700,000 U.S. workers and retirees had a $9 billion surplus and was adding $10 billion to its income calculations. The executive pension was another matter. The $1.4 billion in executive legacy liabilities for an unknown number of executives generates an expense that hurts GM’s bottom line each year. GM has often claimed that its U.S. pension plans add about $800 to the cost of each car made in the United States. But it doesn’t say how much of this cost is for executive legacy liabilities.

A MERCANTILE DECISION

It’s possible that the widening retirement gap is just an unintended by-product of a trend to reduce benefits and enhance executive pay. But at some companies, the disparity was deliberate. In 1996, the pension committee of the board of directors of Mercantile Stores met at the exclusive Union Club in New York City to vote on some critical changes in their retirement plans. The chain of department stores in the Midwest and the South had a pension plan covering 21,000 employees and retirees. The pension plan wasn’t a burden: It had a surplus of about $200 million. The average pension of the retired cashiers and clerks was $138 a month, and employee turnover was so high that many workers never qualified for a pension anyway.

But the company was in financial trouble, and the pension plan was one place to look for relief. Benefits consultants pondered the situation and concluded that pension cuts would be appropriate. Why? Because the Mercantile pension plan was more generous than those of other retailers, the consultants said. At the same time, the consultants concluded that the executives’ pensions weren’t “competitive” with others in the industry. To resolve this supposed imbalance and bring Mercantile’s retirement benefits in line with those of its peers, the board voted to reduce the pensions of low-paid workers and boost executive pensions. Two years later, Dillard’s Inc., a Little Rock, Arkansas–based retailing chain, bought Mercantile, terminated the pension plan, and captured the surplus.

Towers Perrin, the consulting firm that helped Mercantile with these kinds of decisions, merged with Watson Wyatt in 2010. Now called Towers Watson, the global consulting firm continues to help the largest companies in the United States, Canada, the United Kingdom, the Netherlands, and Germany shrink retiree benefits and boost executive pay and pensions.

Towers Watson practices what it preaches. Its employees have a cash-balance pension plan, while top executives have a supplemental pension with all the bells and whistles that have been stripped from rank-and-file pensions, including a generous formula based on final pay, which spikes in value in the later years, and the ability to retire at sixty with full benefits. The company reimburses executives for their FICA (payroll) taxes and “grosses up” the payments (i.e., it pays the taxes on the tax payments). When top managers depart, the company uses an unusually low interest rate, 3.5 percent, to calculate their lump-sum payouts, which results in a larger payment. In fiscal 2010, the executive pension liability for the combined company stood at $627 million, 32 percent of the total pension obligation. The company also paid out $496 million in “discretionary compensation,” i.e. bonuses, of which most, or all, went to executives.

UNDERSTATEMENT

Like many public pension plans, executive liabilities have been growing quietly behind the scenes, producing a mounting obligation, much of it hidden. Even when a company owes its executives billions of dollars, it can be almost impossible to tell because of the way companies bundle all their pensions together in securities filings.

When companies mention executive pensions at all, they typically use terms that only pension-industry insiders would recognize, such as “nonqualified obligations” and “unfunded defined benefit pension plans.” Comparing the obligation and cost of executive pensions to regular ones is possible only at the few companies that actually break out the figures (like GE) or provide enough clues to enable a determined researcher to back the figures out of the totals.

Executive pensions are like public pensions in another critical way: The liabilities are often lowballed. So even if one is able to identify the current liability for executive pensions, the figure may provide an unrealistic view of what the company will ultimately pay out, for a variety of reasons, including the way they are calculated.

Like most public pensions, executive pensions are calculated by multiplying years of service and pay—the formula many private employers have abandoned for regular employees because the benefits grow steeply in the final years. With pensions based on final pay, an individual has a big incentive to make sure the final pay is as high as possible. A firefighter or police officer, for example, might work hundreds of hours in overtime in their final years on the job, a move that might add $50,000 a year to a pension.

Executives do essentially the same thing, with bigger payoffs, and have a variety of ways to boost their pay—and thus their pensions—by millions of dollars prior to departure or retirement. One way is to simply change the definition of “pay” to include more types of compensation. ConocoPhillips included “certain incentive payments” when it totted up CEO Jim Mulva’s pension in 2008, which increased it by $9.5 million and brought it to a total of $68 million. The same year, a $6 million pay increase for Merck’s chief executive, Richard T. Clark, pushed his pension from $11.9 million to $21.7 million.

Awarding a substantial bonus to executives who are on the verge of retirement or departure can also generate a huge pension windfall. One of ExxonMobil’s two supplemental pension plans for executives calculates executive pension benefits using the three highest bonuses in the five years prior to retirement. A well-timed bonus can make a big difference. A $4 million bonus to CEO Rex Tillerson in 2008 pushed the total value of his pension up by $8 million in a single year, to $31 million. “By limiting bonuses to those granted in the five years prior to retirement,” the company states blandly in its proxy filing with federal regulators, “there is a strong motivation for executives to continue to perform at a high level.” It also encourages top management to make some shortsighted decisions, because a large award can lead to bigger pension benefits for the rest of their lives.

Awarding additional years of service, a practice that compensation watchdogs have perennially snapped at, is alive and well. PG&E, the giant West Coast utility, awarded its CEO, Peter Darbee, an additional five years, which boosted his pension 38 percent to $5.2 million in 2008. The company said it was doing this because it felt that his pension was less generous than what other executives were receiving. This kind of peer pressure drives executive pay and pensions steadily higher. That same year, the compensation committee of Constellation Energy awarded its chairman and CEO, Mayo Shattuck, an additional 2.5 years of service, boosting his pension by $10.3 million, a 97 percent increase.

Executive pensions have another characteristic that has been widely criticized in public pensions: Employers have an incentive to boost the benefits and hide the growing (unfunded) liability. In contrast, when it comes to rank-and-file pensions, employers have an incentive to inflate the liabilities and cut benefits.

Using unrealistic (and sometimes undisclosed) assumptions to estimate the executive liability can shrink it substantially. Some companies assume that executive salaries don’t rise; others, like Towers Watson, calculate the executive obligation using an unusually high discount rate, 7.5 percent in 2010, which results in a lower reported liability.

Companies can delay reporting some of the liability by waiting until the executive is headed out the door to apply some feature that inflates the total payout. A small change in the interest rate used to calculate a lump sum payout, for example, can increase a pension by millions of dollars.

In 2008, Goodyear Tire & Rubber adjusted the interest rate and compensation assumptions it used to calculate top executives’ pensions, which increased chief executive Robert Keegan’s pension by $6.3 million, to a total of $17.5 million. (The company earlier credited him with eighteen additional years of service, which has boosted his pension by $10.5 million.) At the end of that same year, Goodyear froze salaried employees’ pensions, saying its obligations under the plans were so onerous that they “could impair our ability to achieve or sustain future profitability.”

Joel Gemunder, the CEO of Omnicare, a provider of pharmaceutical care for nursing homes, had amassed retirement benefits worth roughly $91 million by the time he retired at age seventy-one in 2010. As lofty as that figure was, it got even bigger when he left. His retirement triggered immediate vesting for his stock options and restricted shares, which were worth more than $21 million, and he received $16.2 million in cash as a severance payment. Small perks included payments for tax and financial planning ($134,250) and “executive bookkeeping services” ($27,500). Altogether, the total retirement payout was more than $130 million. And ordinary Omnicare workers? Their pensions were frozen years ago, and in 2009 the company imposed salary cuts even as it reported record profits.

The pension and deferred-comp tables included in annual proxy statements provide a limited snapshot of the value of a top manager’s benefits. But these amounts aren’t what the person is likely to receive. Those numbers are tucked away lower down, under various provisions, such as “voluntary retirement” or “disability.” If someone relied on the pension table in Wells Fargo’s proxy statement, they might conclude that president John Stumpf’s pension in 2008 was $9.6 million, a 3 percent decline from the prior year. But elsewhere, the filing notes that the value of the pension he would receive if he left spiked to $17.7 million from $11.2 million—a 58 percent increase.

The biggest trigger of a huge pension boost can be a change in control. Scott Ford, president and chief executive of Alltel Corp., had accumulated a pension of $16.8 million through 2007. But after the company was acquired by Verizon, change-in-control provisions tripled Ford’s salary and awarded three additional years of service. He left the company in 2008 with a pension payment of $51.7 million. Altogether, the five departing top executives received pension payouts of $131 million.

Despite their limitations, the executive pension tables in the proxy are better than nothing. In the S&P 500, 160 companies don’t have the kinds of retirement benefits that they are required to disclose in the proxies’ pension tables. This doesn’t mean that those executives receive no retirement benefits, just that the companies characterize the benefits as something other than a pension, so the benefits don’t fall under the enhanced SEC disclosure rules that companies were required to adopt in 2007. These require companies to place an overall value on their executives’ pension benefits.

Omnicom, for example, established a Senior Executive Restricted Covenant & Retention Plan in 2006 to provide top executives at the global advertising giant with an annual payment, based on salary and years of service, for fifteen years after they depart. John Wren, the company’s chief executive, will receive $1.3 million a year for fifteen years. The retirement payments will grow with a cost-of-living adjustment, a feature that most companies have discontinued in the pensions for regular employees. The liability for this? Anyone’s guess.

Some companies even give the impression that they’ve cut executive retirement benefits. Companies that freeze their regular pension plans sometimes freeze their executive pensions, too, especially when the plan is a so-called makeup, or excess, plan that mirrors the regular 401(k) but allows greater deferrals. But companies may take steps to soften or eliminate the impact. State Street Corp. froze its executive pensions effective January 1, 2008, but awarded executives “transition” benefits that postponed the freeze for two years. Thanks to this feature, and a drop in interest rates and other factors, their pensions rose 47 percent in 2008, and CEO Ronald Logue’s pensions (like most top executives, he has more than one) rose by $7.8 million to $25.3 million. The company also added a retirement savings component to the plan and will contribute $400,000 a year in cash and stock to each executive’s account.

Lincoln National Corp. also froze both its regular and executive pensions in 2008. When it did, it converted the executive pensions to lump sums, enhanced their value by $6.3 million, and added the benefits to a new deferred-compensation plan, to which the company will contribute a minimum of 15 percent of the executives’ total compensation each year. That year, it contributed $12.3 million to the new account for CEO Dennis Glass. The company didn’t enhance the 401(k) plans of regular employees whose pensions it froze.

One thing people can count on: Unlike the pensions of regular employees, executive liabilities aren’t going away. They’re protected by contracts. Though lower-level executives can lose their deferred comp in bankruptcy, the pensions and savings of top officers are usually protected by bankruptcy-proof trusts. Chesapeake Energy, the secondlargest natural gas producer in the United States, doesn’t disclose the total amount it owes executives, but it’s no doubt a hefty sum. Aubrey K. McClendon, the chief executive, had compensation that totaled $156 million in the last three years. He’s also owed $120 million in pension and deferred-compensation benefits. In its annual report, Chesapeake needs thirty-four pages to describe its executives’ retirement benefits. The benefits for 8,200 employees require only half a page to describe—they don’t have pensions.

DEFERRED GRATIFICATION

Pensions aren’t the only executive liability. So is much of their pay. Unlike salary paid out to factory workers or the CFO, deferred compensation creates huge, and largely hidden, obligations. The plans can cover thousands of lower-level executives and other highly compensated employees, who participate in so-called excess plans. These enable employees to defer some of their salary that they can’t put into the 401(k) because of tax laws that limit total employee contributions to $15,000. So if a 401(k) allows employees to contribute 15 percent of pay, someone making $200,000 will be allowed to contribute only a total of $15,000 to the 401(k), and can defer the rest in the excess plan.

These are also called mirror plans, because they “mirror” the 401(k). The only difference is that the amount deferred into the excess plan isn’t actual cash, as it is with a 401(k), but an IOU from the company for the pay. Nonetheless, the employee allocates it among virtual mutual funds—usually the ones available in the 401(k)—and may also receive virtual employer contributions.

Upper-level executives often have more elite deferred-compensation plans that enable them to defer upward of 100 percent of their salary and bonuses each year, and sometimes restricted stock or the gains from exercising stock options.

The deferred pay can grow quickly. Companies might contribute a percentage of what the executive defers or make an outright contribution, no strings attached. The savings grow with returns pegged to investment, or with guaranteed returns—as high as 14 percent at GE. The accounts also grow with company contributions, such as the 20 percent match that drug giant Wyeth provides its top executives. John Stafford, the former chairman, one year collected $3.8 million in interest alone on his deferred-compensation account, valued at nearly $38 million. Together, the value of the company contributions and tax-deferred returns can boost the value of the pay by 40 percent.

Companies are required to report only guaranteed above-market interest paid annually into the accounts of the five highest-paid executives, and include the size of each individual’s accounts in a separate table. But the total amount of all the deferred compensation of hundreds of executives is typically hidden.

Totting up the total amount a company owes its executives can take some creativity. One way to get a sense of their size is to look at a reporting item called a “deferred tax asset.” Companies can deduct compensation they pay, but only when they actually fork over the money (or put money into the pension or 401(k) plan).

When compensation is deferred, companies record a deferred tax asset for the compensation, which is essentially an estimate of how much the company will be able to deduct in the future—when it actually pays executives what it owes them. JPMorgan Chase, for instance, reported a $3.4 billion deferred tax asset for employee benefits in 2007. Assuming a 40 percent combined federal and state tax rate—and backing out obligations for retiree health and other items—this indicates that the financial giant owed its executives $8.2 billion just before the market crisis. Applying the same technique to Citigroup yields roughly a $5 billion IOU, primarily for restricted stock shares of executives and eligible employees. Fannie Mae had a liability of roughly $500 million for executive pensions and deferred compensation at the end of 2007, judging by the size of its deferred tax assets. The liability remained even as the troubled company was placed into conservatorship.

PAY DIRT

By many means, including the relentless cuts to pensions and retiree health benefits, executive pay tied to stock performance and earnings continues to climb. But how much are executives really taking home? For all the hand-wringing by compensation critics, the magnitude of executive pay has remained an elusive figure. But given that so much of it creates an ongoing liability for both the supplemental pensions and deferred compensation, knowing how large the total is can help investors, at least, gauge the pension headwinds ahead.

An indirect way to calculate the percentage of pay executives collectively receive at U.S. companies is to look at payroll tax data compiled by the Social Security Administration, which most people know as FICA. The key: Only earnings up to a certain ceiling are subject to a U.S. payroll tax of 12.4 percent, split between employer and employee, which finances Social Security retirement benefits. The ceiling, which is indexed to the average growth in wages, was $106,800 in 2010. (Employers and employees also each pay 1.45 percent on an individual’s total income, with no salary ceiling, to fund Medicare.)

The Social Security data shows that 6 percent of wage earners have pay that exceeds the taxable earnings base, and that their “covered earnings” above the taxable maximum totaled $1.1 trillion in 2007. Adding the portion of their pay below the taxable wage base, $991 billion, produces a total of $2.1 trillion. In other words, by 2008, executives were receiving more than one-third of all pay at U.S. companies—more than $2.1 trillion of the $6.4 trillion total compensation.

The 6 percent of those taking home one-third of all pay includes everyone earning more than the wage base. But the top 2 percent of earners account for the lion’s share of the $2.1 trillion. And that’s just the pay top earners receive or defer. The figure understates executive pay because it includes just salary and vested deferred compensation, including bonuses.

It doesn’t include unvested employer contributions and unvested interest credited to deferred-compensation accounts. Nor does it include unexercised stock options (options aren’t subject to payroll tax until exercised) and unvested restricted stock (which isn’t subject to payroll tax until vested; the subsequent appreciation is taxed as a capital gain).[11]

Also not included in the total compensation figures are types of executive pay that are never subject to payroll tax at all. This category includes incentive stock options (which are generally taxed as capital gains) and compensation characterized as a benefit (certain benefits, including pensions, aren’t subject to any Social Security taxes). The compensation data also leave out compensation paid to hedge fund and private equity managers. The billions they receive isn’t considered pay; it’s treated as “carried interest,” which is taxed as a capital gain.

And what about the other half of the compensation equation—benefits? In addition to $6.4 trillion in wages and salaries, private companies pay $1 trillion in benefits, which include contributions to retirement plans—both pensions and 401(k)s—health care, and life insurance contracts. It isn’t possible to tell what portion represents benefits—and liabilities—for executives.

At the giddy height of the mortgage bubble in 2006, economists at Goldman Sachs analyzed what had been the biggest contributors to record corporate profits. The lead items on their list weren’t productivity, innovation, or the quality of management. “The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income,” they wrote. They weren’t talking about pensions and benefits, but the patterns are parallel.

SHADOW PLAN

Even if the public doesn’t know or care how big the executive liabilities are, finance officers certainly do, and they have come up with various ways to deal with it.

The life cycle of pension plans at drug wholesaler McKesson Corp. may provide a hint about how this trend will play out at the many companies with frozen pensions and growing executive liabilities.

McKesson froze its employees’ pensions in 1997, and the next year established a SERP for top management. The frozen pension plan soon had a surplus because workers were no longer building pensions and the liability was falling with every dollar paid out to retirees. Thanks to gains from curtailing the pension, plus asset returns, the frozen plan began to generate income. This offset the annual expense of the unfunded executive pensions.

Essentially, frozen employee pensions, like the one at McKesson, provide shadow funding for executive pensions. This isn’t necessarily a cash resource (see Chapter 8, “Unfair Shares”). Rather, the pension income offsets the drag the unfunded executive pensions create on income. This is one reason why companies freeze pension plans rather than terminate them: They can be worth more alive than dead. Why kill the fatted calf when you can continue to milk the cow for years?

In 2007, McKesson acquired Per-Se Technologies and merged that company’s underfunded frozen pension with McKesson’s overfunded frozen pension. This relieved McKesson of the need to contribute to the Per-Se plan. Indirectly, McKesson had monetized the surplus assets in its frozen pension plan. Over time, assuming McKesson doesn’t extract the assets, the plan will have a surplus that will continue to build, especially when interest rates begin to rise from their historically low levels. Once again, the frozen plan will be a shadow fund for the executive pensions, including the more than $90 million owed to chief executive John Hammergren.