Executives at 10 Companies Received Approximately $350 Million in Compensation

Executives at 10 companies received approximately $350 million in pay  and other benefits in the years leading up to the termination of their  companies’ underfunded pension plans. We identified the salaries,  bonuses, and benefits provided to small groups of high-ranking executives  at these companies. We  also found that some executives at these companies received millions of  dollars combined in other financial benefits such as income tax  reimbursements, retention bonuses, severance packages, split-dollar life  insurance, and supplemental retirement plans. We did not find any illegal activity  related to executive compensation on the part of either the 10 companies  or the 40 executives under review. We spoke to several retirees, including one pilot who lost two-thirds  of his monthly pension payments when his pension plan was turned over  to PBGC. In  the 5 years leading up to the company’s failure, five executives received a  total of nearly $70 million in salary, bonuses, and benefits. PBGC Has Limited Recovery Ability Regarding Executive Compensation

During our review of case studies, we noted that PBGC has little to no  oversight authority regarding executive compensation. Any executive compensation paid during the  course of a bankruptcy must be approved by the court, and once  approved, cannot be recovered. Appendix I: Scope and Methodology

To determine pay and other compensation received by executives in the  years preceding their company’s termination of an underfunded defined  benefit pension plan, we first obtained a database from the Pension  Benefit Guaranty Corporation (PBGC) identifying companies that had  terminated underfunded pension plans from 1999 to 2008. Of the 1,246  underfunded plans terminated from 1999 to 2008, we selected 10  companies from approximately 30 companies that sponsored plans which  met our criteria. We reviewed Securities  and Exchange Commission (SEC) filings and PBGC documents disclosing  plan underfunding at the time of termination and missed contributions. We  also interviewed PBGC and company officials, as well as plan participants. Because some companies and executives did not provide  information, declined to be interviewed, and/or did not consent to granting  GAO access to copies of their tax returns from the Internal Revenue  Service, we were not able to document all details concerning pay and  benefits received beyond the details available in public documents or  otherwise voluntarily provided. To assess the reliability of PBGC data related to the termination of defined  benefit pension plans from 1999 through 2008, we (1) interviewed PBGC  officials familiar with the data related to terminated pension plans and (2)  matched the data provided by PBGC for the pension plans in each case  study against records available on the agency’s Web site to verify that the  data we were provided were exported correctly.
Why GAO Did This Study

When sponsors terminate underfunded plans during bankruptcy, it can deplete resources of the Pension Benefit Guaranty Corporation (PBGC), which protects the pensions of almost 44 million American workers and retirees who participate in over 29,000 defined benefit pension plans. In 2009, PBGC reported an estimated deficit of over $30 billion. GAO was asked to determine what pay and other compensation executives received in the years preceding their company's termination of an underfunded defined benefit pension plan. To identify case study examples GAO analyzed a listing of the 1,246 underfunded plans that were terminated from 1999 to 2008 and selected public companies with large unfunded liabilities, large unfunded liabilities per participant, and a large number of plan participants. GAO reviewed documents provided by companies and executives, and interviewed PBGC and company officials. GAO also reviewed Securities and Exchange Commission (SEC) filings and PBGC documents disclosing plan underfunding at the time of termination and missed contributions. Executive compensation figures may be understated because some company executives could not be located, did not respond to document requests, declined interviews, and did not give GAO access to their tax records.

What GAO Found

GAO found that 40 executives for 10 companies received approximately $350 million in pay and other compensation in the years leading up to the termination of their companies' underfunded pension plans. GAO identified salaries, bonuses, and benefits provided to small groups of high-ranking executives at these companies during the 5 years leading up to the termination of their pension plans. For example, beyond the tens of millions in base salaries received, GAO found that executives also received millions of dollars in stock awards, income tax reimbursements, retention bonuses, severance packages, and supplemental executive-only retirement plans. In some cases, plan participants had their benefits reduced due to the underfunding of the plan when it was terminated. For example, a retired pilot saw his monthly pension payment reduced by two-thirds. The reduction in benefits occurred because federal law caps the benefits PBGC can guarantee when it takes over an underfunded pension plan. In addition, PBGC has no oversight power with regard to executive compensation prior to a company's bankruptcy. During bankruptcy, executive compensation must be approved by the bankruptcy court, and after this approval PBGC has extremely limited ability to recover those payments to executives. GAO did not find any illegal activity with respect to executive compensation on the part of either the 10 companies or the 40 executives under review.