Many companies have moved millions of dollars of obligations for executive benefits into pension plans of regular worker to acquire greater tax breaks and pay for executives’ supplemental compensation and benefits, according to The Wall Street Journal.

The Journal said neither the IRS nor any other agency has tracked these movements.

A number of companies have shifted executive benefits into frozen pension plans. As these companies begin phasing out pension plans, they freeze the buildings of benefits of the workers, leaving more pension assets to cover executives’ compensation and supplemental benefits.

For example, in 2005, CenturyTel moved its IOUs for supplemental pensions of 18 top employees into regular pension plans. CenturyTel’s CEO Glen Post’s benefits increased to $110,000 a year in the regular pension, from $12,000. When asked, the company bluntly addressed that they did this to take advantage of tax breaks.

Generally, only executives are aware of this as consultants recommend companies to be quiet about these transactions to avoid employee backlash. And although this is not yet deemed illegal, companies have been smart about hiding these actions.

The Journal called this practice a dubious use of tax law that has the potential risk of draining assets from pension plans making them more likely to fail. Many times, the only indication of pension conversion is that small increases to lowered paid groups within the pension plans occur. This is done to pass the non-discrimination tests.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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