In 2008, Congress passed the $700 billion Troubled Asset Recovery Plan bailout. Because of these taxpayer bailouts, more than $40 billion of the golden parachutes of CEOs and other executives of bailed-out companies that otherwise would have been lost, were saved.
Loopholes in the tax code allow corporate executives to shelter from taxes an unlimited amount of the compensation they earn each year. In contrast, non-executive workers have their 401(k) tax-deferred retirement savings capped at $18,000 a year ($24,000 if the worker is older than 50). In exchange for the lack of a cap, deferred compensation plans are held as unsecured assets of the corporation. In case of bankruptcy, deferred compensation plans, like other unsecured assets, would likely be worthless.
The No Windfalls for Bailed Out Executives Act (S. 2546), introduced in the Senate February 11 by Senators Sheldon Whitehouse (D-RI), Richard Blumenthal (D-CT), and Claire McCaskill (D-MO), would require the clawback of deferred compensation payouts made within three years of any taxpayer-funded bailout.
“American taxpayers should never again be on the hook for lavish pay packages at bailed-out firms,” said Whitehouse. “I have a hard time explaining to Rhode Islanders why the guys who ruined the economy a few years ago got golden parachutes instead of prison jumpsuits. This simple fix will make sure that never happens again.”
Executive deferred compensation plans are a key component of the growing retirement divide in America. A recent report by the Institute for Policy Studies and the Center for Effective Government, A Tale of Two Retirements, found that 100 top American CEOs had more retirement assets in their deferred compensation and retirement accounts than the collective retirement assets of 41 percent of America’s families.