The top five executives at the US’s largest companies have amassed close to $9bn in tax-free retirement saving accounts while many of their employees have struggled to set aside any funds for retirement, according to a new report released on Thursday.
The report, A Tale of Two Retirements, from the Institute for Policy Studies and Jobs With Justice found the top five executives at S&P 500 firms held a combined $8.9bn in special tax-deferred accounts at the end of 2021. Income taxes will be due on this compensation when they withdraw the funds, but in the meantime, they benefit from the tax-free compounding of investment returns.
These so-called “top hat” plans allow unlimited tax-deferred retirement while ordinary workers face strict limits on their 401(k) retirement plan contributions. The survey found that at many of these companies, a sizeable percentage of workers – in some cases as much as half – had no money in their 401(k)s.
Under a top-hat plan, an executive who sets aside $1m a year for seven years would wind up with an estimated $1.3m more in after-tax earnings and $1m less in tax liabilities than an executive who does not defer compensation.
At Walmart, CEO Doug McMillon held more than $169m in his deferred compensation account at the end of 2022 – enough to generate a monthly retirement check of more than $1m, according to the report.
Meanwhile, among eligible participants in Walmart’s 401(k) plan, nearly half (46%) have zero balances saved for retirement. The median pay at Walmart is $27,136.
Thomas Pritzker, billionaire chair of Hyatt Hotels, is sheltering $91m from taxes in his deferred pot. The report found 36% of eligible participants in the hotel chain’s 401(k) plan have not been able to set aside any funds. Half of Hyatt employees make less than $40,395.
DIY chain Home Depot chair Craig Menear has amassed $14.8m in deferred compensation. The majority (53%) of eligible participants in Home Depot’s 401(k) plan have zero balances. Menear’s savings would generate a monthly retirement check three times larger than his worker’s median annual pay of just $30,100.
The biggest top hat surveyed by the study belongs to Paul Saville, chair of NVR, one of the largest homebuilders in the US. The $488m in Saville’s account at the end of 2022 would generate a retirement check worth more than $3m every month – 1,513 times as much as a typical American retiree could expect to receive in monthly social security and 401(k) benefits.
The mean value of US retirement accounts was $255,200 in 2019, the most up-to-date figure from the Federal Reserve’s family finances survey. But that figure hides huge disparities in savings. Less than 40% of families in the bottom half of the Fed’s income brackets were enrolled in a retirement plan, compared with more than 80% of upper-middle-income families and more than 90% of families in the top 10%.
Some 42% of Americans age 56-64 have zero retirement account savings, according to the US Census Bureau. Latino (28.3%) and Black (36.1%) workers have the lowest savings rates.
“There’s no rational argument for allowing wealthy executives to shelter unlimited amounts of compensation from taxes while ordinary workers have strict limits on their annual 401(k) contributions,” said report co-author Sarah Anderson, global economy director of the Institute for Policy Studies. “Nothing but the power of corporate leaders to rig rules in their favor can explain this double standard.”
“Rather than giving corporate CEOs unfair special retirement tax benefits not available to those they employ, Congress should eliminate the cap on payroll taxes paid by corporate executives so that Social Security benefits can be strengthened, especially for the 40% of American workers for whom Social Security is their sole retirement income,” said report co-author Scott Klinger, Jobs With Justice senior equitable development specialist.
