The Retirement Divide: CEOs vs. the Rest of Us

January 5, 2017 — 6:00 AM EST

CEOs in the United States have worked diligently to kill pensions. More than 60% of private sector workers had pensions in 1980; today it is down to just 10.4% in the private sector. But not everyone’s pension disappeared. As CEOs were saving their companies’ money by cutting employee pensions, they were also working diligently to increase their own.

America’s Massive Retirement Divide

The Institute for Policy Studies found that 100 CEOs amassed retirement funds worth $4.7 billion. That amount equals the entire retirement savings of the 41% of U.S. families with the smallest nest eggs. These are the findings of “A Tale of Two Retirements,” released by the Institute on Dec. 15.

The numbers look even worse when you compare what the CEOs are getting to what particular groups within the U.S. population have put aside for retirement. For example, that $4.7 billion equals more than the total retirement savings of:

  • 59% of African-American families
  • 75% of Latino families
  • 55% of female-headed households
  • 44% of white working class households

CEOs: It Still Pays to Be a White Male 

Perhaps not surprisingly, there is also a race and gender gap among the CEOs. The white males are substantially better off than CEOs who are women and minorities. The 10 white male CEOS with the largest retirement funds, totaling $1.4 billion, have accumulated more than eight times what the top 10 CEOs of color with the largest retirement assets have saved – and nearly five times as much as the top 10 female CEOs.

Retirement Rules: They’re Different for CEOs

How have these CEOs amassed so much while most workers have seen a decline in retirement security? Three key factors created this divide:

  1. Pension Rules: Ordinary workers have strict limits on how much income they can invest pre-tax in 401(k)s and other tax-deferre​d plans. Fortune 500 firms set up special unlimited tax-deferred compensation savings for executives.
  2. Compensation Rules: More than half of executives’ compensation is based on the company’s stock price. This gives them a powerful incentive to cut retirement benefits to boost the bottom line.
  3. Tax Rules: Companies can deduct the money they put into executive tax-deferred retirement accounts as long as it is performance-based. The more that's paid to executives in tax-deferred retirement accounts, the more the company can deduct on its taxes. Tax savings mean lower costs so there is an increase in the net profit for the company, which usually means higher stock prices and even more for CEO. 

In 2015 alone, CEOs saved $92 million on their taxes by putting $238 million more in these accounts than would have been allowed if they had to follow the same rules as their employees. This divide will get even bigger if President-elect Donald Trump gets his way. He is proposing to cut the top marginal tax rate from 39.6% to 33%. Fortune 500 CEOs would save $196 million if they used this opportunity to withdraw tax-deferred funds. 

The death rattle for pensions was signaled quietly in 2012 with a pension rule change that was part of the passage of a transportation bill called “Moving Ahead for Progress in the 21st Century” or MAP-21, signed by President Obama. The rule allowed companies to reduce contributions to pensions and made more money available for the CEOs. “This proves that pensions are pretty much dead,” said Greg McBride, chief financial analyst at, shortly after the bill was passed. “The change is just another charade to mask the underfunding​ of pensions and increases the odds of having less money for retirement.”

Madison Pension Services, a consulting firm, found that minimum pension contributions were reduced by 33% in 2012 after the passage of that bill. (For further background on the disappearance of pensions, see The Demise of the Defined-Benefit Plan.)

Is Social Security Next?

The bulk of wealth in the U.S. – 84% of it – is held by the top 20% of earners. Without pensions, most Americans will depend on Social Security. Yet the assault on retirement income for the majority of Americans will get more intense as Congress considers a bill introduced in December 2016 by Rep. Sam Johnson (R-Texas) to slash that one remaining safety net in retirement. The Center for American Progress estimates that if his bill passes, workers making around $50,000 would see their Social Security checks shrink by between 11% and 35%. Almost every income bracket would see a reduction in their Social Security payments with this plan. Only those making around $12,280 in 2016 who worked for 30 years would see an increase of about 20%. 

According to the current proposal, the changes would affect individuals who turn 62 in 2023 (meaning that they would turn 56 in 2017). An analysis by the Social Security Chief Actuary explains that the retirement age will start increasing for those who reach age 62 in 2023, rising gradually from 67 to 69. Based on this analysis, 51% of retirees would have higher benefits than under the current formula and 49% will have lower benefits.

In addition, beginning with the Dec. 2018 Cost of Living Adjustment (COLA), there would be no COLA for individuals with adjusted gross incomes above $85,000 ($170,000 for joint filers). All others would see a smaller COLA using the chain-weighted version of the CPI-U. (Currently, Social Security uses the CPI-W to calculate COLAs. For more on the issues for seniors related to these indexes, see: Why the Current Social Security Cost-of-Living Index Is Hurting Retirees.)

Congress will begin consideration of this legislation in 2017. 

The Bottom Line

While CEOs’ retirement savings stand to gain from President-elect Trump’s tax bill, most American retirees could be threatened with even worse retirement security.