DRAFT – NOT FOR CIRCULATION OR CITATION
Authors
Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and
is the lead author of the annual IPS Executive Excess report. She is also a co-editor of the
IPS web site Inequality.org.
Scott Klinger is the Senior Equitable Development Specialist at Jobs With Justice. He has
worked in the arenas of corporate social responsibility, executive compensation, and
corporate taxes for three decades. He crafted the first shareholder proposals on executive
pay while working as a social investment portfolio manager. Scott is a CFA charterholder.
Research Assistance: Bella DeVaan, Program Associate and Inequality.org co-editor at
the Institute for Policy Studies.
Cover design: Sarah Gertler, Institute for Policy Studies.
Acknowledgements: Thanks to Monique Morrissey, Economic Policy Institute, for expert
comments on this report.
The Institute for Policy Studies (www.IPS-
dc.org) is a multi-issue research center that has
conducted path-breaking research on executive
compensation for more than 20 years. The IPS
Inequality.org website provides an online portal
into all things related to the income and wealth
gaps that so divide us, in the United States and
throughout the world. Sign up for our weekly
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living within an economy that works for
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Contents
Key Findings…………………………………………………………………………….…… 1
The Double Standard in Government Retirement Subsidies ..……….………….…….. 3
Company Examples……………………….……………………………..………...………… 7
Low-wage employers
Real estate executives
Health care executives
Narrowing the Retirement Divide…………………………………………………….…… 12
Methodology and Sources…………………………..……………..……….………………. 14
1
Key Findings
A double standard in our tax code for government retirement subsidies gives preferential
treatment to those who need it least — wealthy corporate executives. Ordinary employees with
access to 401(k) plans face strict limits on the amounts they can set aside, tax-free, for their
golden years. Most senior executives of large corporations, on the other hand, have unlimited
tax-deferred compensation accounts. Often called “top hat” plans, these special perks for
executives are growing rapidly.
“Top hat” plans offer the rich one more way to avoid paying their fair share of taxes
• The top five executives at S&P 500 firms held a combined $8.9 billion in special tax-deferred
accounts at the end of 2021 and such perks became even more common over the past year.
Executives owe income taxes on this compensation when they withdraw the funds. But in
the meantime, they benefit from the tax-free compounding of investment returns.
• An executive who sets aside $1 million in a deferred account every year for seven years and
earns average returns would wind up with an estimated $1.3 million more in after-tax
earnings and $1 million less in tax liabilities than an executive who pays annual income
taxes on that compensation and capital gains taxes on investment assets purchased with that
compensation income.
Low-wage employers have among the largest deferred compensation accounts while
many of their workers can’t afford to contribute to 401(k) plans
• At more than 20 low-wage employers, executives have sufficient deferred compensation
funds to generate monthly retirement checks larger than their workers’ median annual pay.
• Walmart CEO Doug McMillon held more than $169 million in his deferred compensation
account at the end of 2022 — enough to generate a monthly retirement check worth more
than $1 million. The retail giant offers employees 401(k) plans with matching funds, but 46
percent of eligible participants have zero balances. Median pay at Walmart: $27,136 (half of
their 2.1 million employees make less).
• Hyatt Hotels Board Chair and billionaire Thomas Pritzker is sheltering $91 million from
taxes in his deferred pot, while 36 percent of the hotel chain’s employees have not been able
to set aside any funds in their 401(k) accounts. Half of Hyatt employees make less than
$40,395.
• A majority (53 percent) of eligible participants in Home Depot’s 401(k) plan have zero
balances. Meanwhile, former CEO and current Board Chair Craig Menear is sitting on $14.8
million in deferred compensation — enough to generate a monthly retirement check three
times larger than the company’s median worker pay of just $30,100.
2
As ordinary families struggle with rising housing costs, real estate executives are sitting
on massive tax-sheltered funds
• Paul Saville, Executive Chairman of NVR, the owner of Ryan Homes, has the fattest
“top hat” account in the S&P 500. The $488 million in his account at the end of 2022 is
enough to generate a $3 million retirement check every month for the rest of his life.
That’s 1,514 times as much as a typical American retiree could expect to receive every
month, based on the average U.S. Social Security benefit and median 401(k) accounts.
• Two leading rental apartment corporations, Camden Property Trust and AvalonBay
Communities, are also near the top of the “top hat” list. At Camden, two executives
have more than $80 million each in their deferred accounts while the Executive Chair of
AvalonBay has $23 million.
Health care executives have amassed huge deferred compensation accounts, buoyed by
taxpayer investments
• The CEO of Centene, the nation’s largest Medicaid provider, had the second-largest
“top hat” plan in the S&P 500 in 2022, valued at $328 million.
• Fueled by Covid vaccine profits, Pfizer CEO Albert Bourla enjoyed a 37 percent increase
in the value of his deferred compensation account over the past year, from $29.5 million
to $44.4 million at the end of 2022.
The deferred compensation double standard is widening the retirement divide
• Among S&P 500 CEOs with tax-deferred accounts, the average balance at the end of
2021 was $14.6 million. By contrast, the median 401(k) balance at Vanguard, a major
provider of such plans, was just $33,472. The current annual contribution limit for 401(k)
plans: $22,500, or $30,000 for employees over age 50.
• Nationwide, just 35 percent of working-age adults have tax-deferred 401(k)-type defined
contribution plans through their employer and another 13 percent have defined benefit
or cash balance plans. Some 42 percent of Americans age 56-64 have zero retirement
account savings, according to the U.S. Census Bureau. Americans who are unable to
save for retirement need to rely on Social Security, which pays an average monthly
benefit of $1,784, as of March 2023.
• Among S&P 500 CEOs with company-provided retirement assets (either or both a “top
hat” plan and a pension) the average balance at the end of 2021 was $19.4 million.
3
The Double Standard in Government
Retirement Subsidies
In the eight years we’ve been analyzing the retirement divide, we’ve seen ordinary workers
struggle with rising insecurity while corporate executives enjoy ever larger gilded nest eggs.
One largely overlooked factor in this disparity: the double standard in government retirement
subsidies.
The sections of the U.S. tax code related to employer-provided, tax-deferred retirement accounts
impose one set of strict rules on ordinary workers and another set of far more flexible rules for
corporate top brass. Employees with 401(k) plans face hard caps on the amounts they can set
aside in these accounts every year. By contrast, Section 409A of the tax code allows top
corporate executives to place unlimited amounts in special “non-qualified tax deferred
compensation” accounts, often called “top hat” plans.
From a policy point of view, no rational argument exists for allowing certain members of
society to shelter unlimited amounts of compensation from taxes simply because of the kind of
work they perform. This double standard reflects corporate leaders’ power to rig rules in their
favor.
A Tale of Two Retirements: The Worker Story
Some 42 percent of Americans age 56-64 have zero retirement account savings, according to the
U.S. Census Bureau. For decades now, large U.S. corporations have been making workers’
retirement futures less secure by abandoning traditional pensions in favor of 401(k) plans.
In 1984, more than 30 million Americans had defined benefit pensions through which
employers bore the financial risks for their workers’ retirement security. By 2020, that number
had declined to just 12 million, and private sector workers were approximately 3.5 times as
likely to have a defined contribution plan as a traditional pension.
The current annual limit on 401(k) contributions: $22,500, or $30,000 for employees over age 50.
Under these plans, the amount employees will receive after retirement depends on how much
they contribute, the whims of financial markets, and the size of often hidden administrative
costs and fees.
Last year’s bear market was a painful reminder of the unpredictability of such funds. Fidelity,
the largest manager of 401(k) plans, reported a 20 percent drop in average balances between the
last quarters of 2021 and 2022.
4
Companies often match a portion of employee 401(k) contributions, but this benefit is
meaningless for the many low-wage workers who cannot afford to set aside any of their wages,
as we detail in the next section of this report.
In 2022, Congress passed the SECURE 2.0 bill, which requires companies with new 401(k) plans
to automatically enroll eligible employees, starting in 2025. While well-intentioned, this reform
will have limited impact because the new rules don’t apply to businesses with existing plans
and workers who cannot afford to contribute will still need to opt out of the benefit.
A Tale of Two Retirements: The Executive Story
By shifting investment risk onto employees through defined contribution plans, corporations
have slashed their overall retirement costs, boosting earnings and stock prices and in turn
pumping up executives’ stock-based pay.
The unlimited tax-deferred accounts most big company top executives hold also provide huge
tax savings. Executives owe income taxes on their deferred compensation when they withdraw
the funds. But in the meantime, they benefit from the tax-free compounding of investment
returns.
An executive who sets aside $1 million every year for seven years and earns average returns
would wind up with an estimated $1.3 million more in after-tax earnings and $1 million less in
tax liabilities than an executive who pays annual income taxes on that compensation and capital
gains taxes on investments purchased with that compensation.
The Tax Benefits from Deferring Compensation
A hypothetical based on two corporate executives in the top income tax bracket
Corporate executive who can defer
compensation
Corporate executive who cannot defer
compensation
1. Receives and defers $1 million in compensation
every year for 7 years (average CEO tenure)
1. Receives $1 million in compensation every year for 7
years
2. Earns 10 percent return each year (the long-term
average annual return) and pays no taxes, for a total of
$10.4 million over 7 years.
2. Pays 37% income tax on each annual payment of $1
million, leaving $630,000 to invest in financial markets.
Pays an annual 23.8% tax on long-term capital gains.
3. Income tax owed when the executive withdraws the
compensation after 7 years: $3.9 million. After-tax
earnings: $6.6 million.
3. Total taxes owed over 7 years: $4.9 million. After tax
earnings total: $5.3 million.
After 7 years, the executive who defers would wind up with an estimated:
$1.3 million more in after-tax earnings
$1 million less in tax liabilities
Note: Estimates based on statutory tax rates. The executive who does not defer may exploit other tax breaks that would reduce the actual rates paid.
5
Executives can also get lucky with the timing of their deferred compensation withdrawals. The
top marginal tax rate was 39.6 percent from 2013 to 2017. A company bigwig who deferred pay
during that period and withdraws the funds under the current 37 percent top rate will reap
even bigger windfalls. This gives executives a personal incentive to throw their political power
behind efforts to further reduce taxes on the wealthy.
Executives can also take steps to minimize their state income tax liability by moving after
retirement to a state with low or no state income taxes (e.g., Florida), depriving the state where
the income was earned of the revenue it would have been entitled to, had deferred comp rules
not been in place. The funds in these accounts can be passed on to the executive’s heirs,
allowing our country’s extreme wealth concentration to be passed onto future generations.
In the event of a company bankruptcy, executives are not guaranteed the full value of these
deferred accounts. However, a 2020 GAO report found mixed outcomes in a review of Chapter
11 filings. Executives who stayed with the company through a reorganization were particularly
likely to maintain all or most of their deferred compensation. GAO also noted that in two of
three liquidation cases they studied, executives withdrew their deferred compensation shortly
before their company filed for bankruptcy.
The GAO report also found that the IRS and Department of Labor lacked adequate oversight
standards to determine whether existing eligibility rules were being correctly applied. GAO
noted that the IRS lacked auditing standards to review executive retirement plans when
conducting audits of corporate tax returns. The report also documented the various ways
existing rules provide federal subsidies to corporate executives and the companies that employ
them that are not available to other taxpayers.
These deferred compensation accounts come on top of the massive compensation corporate
executives pocket every year. In 2021, S&P 500 CEOs received, on average, $18.3 million in total
compensation. An early Equilar analysis of 2022 CEO pay levels at 100 large corporations found
a median of $22.3 million. Many large U.S. corporations also offer their top brass a
Supplemental Executive Retirement Plan, which can be designed as defined benefit plans that
guarantee a monthly check after retirement or as defined contribution plans, which may include
variable or performance-based features.
“Top Hat” plans are widespread – and growing
Industry experts are reporting rapid growth of non-qualified deferred plans as executives
demand more and more opportunities to pad their pockets and lower their tax bills. In
September 2022, Voya Financial Inc. saw a 33 percent increase over the previous year in the
number of clients offering non-qualified plans, according to the trade publication Pensions &
Investments. Willis Towers Watson reported helping clients implement more new non-qualified
plans in the preceding 12 to 18 months than in the past six years.
6
We analyzed S&P 500 deferred compensation accounts as of the end of 2021. We looked at
balances for all named executive officers (the CEO, the CFO, and the top three other highest-
paid executives). Companies with mid-year turnover provide data for more than five executives
in their proxy statements.
S&P 500
2021 year-end
Nonqualified deferred compensation accounts:
Total deferred compensation, including withdrawals made during the year – all
named executive officers
$8,856,362,558
Share of CEOs with balances in their nonqualified deferred compensation accounts
64%
Average non-qualified deferred compensation balance – CEOs
$14,572,388
Average non-qualified deferred compensation balance – all named exec officers
$5,573,544
Defined benefit pension funds:
Total value of defined benefit pension funds – all named executive officers
$5,286,270,405
Average pension fund - CEOs
$12,672.631
Deferred compensation and defined benefit pensions:
Total retirement assets (deferred comp + pension value) – all named executive
officers
$14,142,632,963
Average retirement assets (deferred comp + pension value) - CEOs
$19,372,841
Source: Institute for Policy Studies analysis of company proxy statements.
Among the 64 percent of S&P 500 CEOs with tax-deferred accounts, the average balance at the
end of 2021 was $14.6 million. That’s 113 times the average 401(k) balance of $129,157 at
Vanguard, a major provider of such plans. Vanguard’s median 401(k) balance is far lower, at
just $33,472.
Nationwide, just 35 percent of working-age adults have tax-deferred 401(k)-type defined
contribution plans through their employer and another 13 percent have defined benefit or cash
balance plans. Of Americans ages 56-64, fully 42 percent have zero retirement account savings,
according to the U.S. Census Bureau. Americans who are unable to save for retirement need to
rely on Social Security, which as of March 2023 pays an average monthly benefit of $1,784 —
slightly less than average U.S. monthly apartment rent.
Among S&P 500 CEOs with company-provided retirement assets — a “top hat” plan and/or a
pension — the average balance at the end of 2021 was $19.4 million.
7
Low-wage employers
Top executives of low-wage employers are sitting on some of the largest deferred compensation
accounts. The table below lists executives whose “top hat” account balances are large enough to
generate a monthly retirement check that exceeds their workers’ 2022 median annual pay.
Executives Set to Receive More in Monthly Retirement Checks from Their Deferred
Compensation Accounts Than Their Typical Workers Make in a Year
Company
Executive with the largest
deferred compensation
account/title
Total deferred
compensation,
end of FY2022
Estimated
executive
monthly
retirement
check
Median
annual
worker
pay,
FY2022
Share of eligible
401(k) plan
participants who
have zero balances,
2021 year-end
WALMART
C. Douglas McMillon, CEO
$169,008,390
$1,042,300
$27,136
46%
HYATT HOTELS
Thomas J. Pritzker, Board Chair
$91,217,077
$562,600
$40,395
36%
SERVICE
CORPORATION
INTL
Thomas L. Ryan, CEO
$65,262,950
$402,500
$40,227
Non-union: 6%
Union: 39%
RALPH LAUREN
Ralph Lauren, CEO
$54,360,276
$335,300
$26,670
41%
DISNEY (WALT)
Christine Mary McCarthy, CFO
$43,968,031
$260,510
$54,256
Hourly: 32%
Salaried: 6%
NIKE
Mark G. Parker, Executive
Chairman
$26,861,591
$165,660
$37,410
25%
AUTOZONE
William C. Rhodes, III, CEO
$23,254,376
$143,420
$31,751
N/A
TJX
Ernie Herrman, CEO
$19,684,322
$121,400
$13,884
N/A
MCCORMICK & CO
Lawrence E. Kurzius, CEO
$15,580,469
$96,090
$38,724
N/A
HOME DEPOT
Craig A. Menear, former
CEO/current Board Chair
$14,776,934
$91,130
$30,100
53%
ROBERT HALF
INTERNATIONAL
Keith Waddell, CEO
$14,637,506
$90,270
$33,912
Temporary (78% of
total employees): 83%
Non-temporary: 9%
COSTCO
Richard A. Galanti, CFO
$13,867,501
$85,530
$45,450
3%
1-800-
FLOWERS.COM
James F. McCann, Exec
Chairman
$13,031,023
$80,370
$36,640
Temporary and/or
seasonal: 57%
Non-temporary: 18%
TARGET
John J. Mulligan, Exec VP and
COO
$10,629,778
$65,560
$25,993
58%
CHIPOTLE
John Hartung, CFO
$9,592,952
$59,160
$16,010
91%
TYSON FOODS
John Tyson, Board Chair
$7,322,733
$45,160
$41,967
44%
DICK’S SPORTING
GOODS
Edward W. Stack, Executive
Chairman
$7,136,821
$44,010
$10,585
62%
CHURCHILL
DOWNS
William C. Carstanjen, CEO
$6,344,734
$39,130
$21,988
48%
MCDONALD’S
Kevin Ozan, Senior Exec VP
$6,086,247
$37,540
$14,521
36%
PETCO
Ronald Coughlin, Jr., CEO
$5,542,731
$34,180
$28,016
70%
DARDEN
Eugene Lee, former
CEO/current Board Chair
$4,863,050
$29,992
$21,931
79%
YUM BRANDS
David Gibbs, CEO
$4,278,300
$26,386
$10,398
73%
Sources and notes: Deferred compensation and median worker pay: proxy statements filed with the SEC. Deferred compensation includes
withdrawals during the year. Active participants and employees with zero 401(k) balances: Form 5500 reports filed with the U.S. Department of Labor.
Estimated monthly retirement check: Calculated using www.immediateannuities.com, assuming immediate retirement, male, age 65, New York
residence. N/A: 401(k) plan participants make up less than half of the company’s total U.S. employees. All companies listed have a majority of their
employees in the United States.
8
Corporations often offer 401(k) plans with matching funds. But these benefits are virtually
meaningless to a significant share of low-wage workers because they cannot afford to set aside
any wages for their retirement.
We analyzed Form 5500 reports filed with the Department of Labor by the companies in the
table to determine the share of employees with zero balances. In most cases, more than a third
of eligible participants had zero funds in their accounts. At all of these companies, a majority of
workers are U.S.-based. We did not include 401(k) balance information for three companies
where plan participants make up less than half of the company’s total U.S. employees.
Among workers nationwide who do contribute to their 401(k) plan, 17.5 million (12 percent) do
not set aside enough money to receive their employer’s full match, according to a 2021 Magnify
Money survey.
Walmart
CEO Doug McMillon held more than $169 million in his non-qualified deferred compensation
account at the end of 2022. That’s 8,556 times as much as the average Walmart 401(k) plan
balance of $19,753 at the end of 2021 (most recent available). Using an annuities calculator, we
estimate that if McMillon were to retire now, he could expect a monthly retirement check of
more than $1 million from his tax-deferred account.
Walmart offers a 401(k) plan to all employees with immediate vesting and matching funds up to
6 percent of an employee’s wages after their first year. But that benefit is only meaningful if
workers can afford to set aside funds in these accounts. According to Walmart’s Form 5500 filed
with the U.S. Department of Labor, 46 percent of eligible participants in the company’s 401(k)
plan have not been able to set aside any money in their account. Median pay at Walmart:
$27,136 (half of their 2.1 million employees, 1.6 million of whom are U.S.-based, make less).
The Walmart CEOs who immediately preceded McMillon, Michael Duke and Lee Scott, also
stuffed massive sums in their “top hat” accounts. Duke retired with $178 million and Scott with
$65 million in tax-deferred comp, adjusted to 2022 dollars. In other words, these three men
sheltered more than $411 million from the IRS while paying their workers so little that a
significant share over the years have had to rely on public assistance.
Former Walmart CEO Scott’s experience demonstrates how executives can enjoy huge tax
windfalls through fortuitous timing of their deferred compensation withdrawals. He began
contributing to a deferred plan in 1996, when the top marginal tax rate was 39.6 percent. He
owed taxes on these funds after he retired in 2009. By that time, the top tax rate had been
pushed down to just 35 percent.
9
Hyatt Hotels
Hyatt Board Chair Thomas Pritzker is sheltering $91 million from taxes in his deferred account,
the second-largest stash among major low-wage employers. The son of the Hyatt Hotels
founder, Pritzker has an estimated net worth of $5.5 billion. By contrast, half of Hyatt
employees earn less than $40,395 and 36 percent of those eligible to participate in the hotel
chain’s 401(k) plan have not been able to set aside any funds in their accounts. Ninety percent of
Hyatt employees work in the United States.
Home Depot
A majority (53 percent) of eligible participants in Home Depot’s 401(k) plan have zero balances.
Meanwhile, former CEO and current Board Chair Craig Menear is sitting on $14.8 million in
deferred compensation — enough to generate a monthly retirement check three times larger
than the company’s median worker pay of just $30,100. The value of his deferred comp balance
has nearly doubled since 2019 as his firm has enjoyed a pandemic-related home improvement
spending boom. Over 89 percent of Home Depot’s 490,600 employees work in the United States.
Darden and YUM Brands
The leaders of these restaurant industry giants can look forward to monthly retirement checks
larger than their workers’ median annual pay and more than 70 percent of eligible participants
in their 401(k) plans have zero balances.
Both companies have long been major players in the National Restaurant Association, which
opposes raising the federal minimum wage and has been the leading force in keeping the
federal tipped minimum wage stuck at $2.13 since 1991. The Iowa affiliate of the association
was also reportedly a driver of that state’s new law weakening child labor protections.
David Gibbs has only been at the helm of YUM Brands, the owner of Taco Bell, KFC, and Pizza
Hut, since 2020. The company’s low-wage model generated enormous wealth for former YUM
CEO David Novak, who retired in January 2016 with $239 million in his “top hat” plan. Darden
is the country’s largest full-service restaurant company as the parent of Olive Garden,
LongHorn Steakhouse, Capital Grille, and several other chains.
10
Real estate executives
With rents soaring and the median U.S. home price rising by 42 percent between 2019 and the
end of 2022, ordinary families are finding it hard to set aside money for retirement. By contrast,
several housing industry CEOs are at the top of the list of S&P 500 executives with the largest
deferred compensation funds.
NVR (owner of Ryan Homes)
Paul Saville, who transitioned in 2022 from CEO to Executive Chairman of NVR, has the fattest
“top hat” account in the S&P 500. NVR is a leading home construction corporation and also
provides mortgage services.
The $488 million in Saville’s deferred account at the end of 2022 is enough to generate
retirement checks of more than $3 million every month for the rest of his life. That’s 1,514 times
as much as a typical American retiree can expect to receive every month, based on the average
U.S. Social Security benefit of $1,784 plus a monthly retirement check of $206 generated by the
median Vanguard 401(k) account balance of $33,472.
Of course Saville, whose personal net worth is around $1.7 billion, won’t have to rely solely on
these $3 million monthly retirement checks. Just one indicator of his vast wealth: In 2017, he
sold his Palm Beach home to fellow billionaire Ken Griffin for $85 million.
Camden Property Trust
Executives of Camden Property Trust have profited handsomely from skyrocketing rental rates.
The company has more than 60,000 apartment homes across the country. At the end of 2022, the
real estate investment trust’s top five officers were sheltering from taxes a combined total of
more than $200 million in their “top hat” accounts. CEO Richard Campo had more than $81
million and Executive Vice Board Chair Keith Oden had more than $86 million in their
accounts.
A 2021 Jobs With Justice/Private Equity Stakeholder Project report found that Camden had
pocketed more than $1 million in federal Covid relief subsidies while continuing to file eviction
notices against tenants.
AvalonBay Communities, Inc.
AvalonBay Communities Executive Chairman Timothy Naughton had more than $23 million in
his deferred compensation account at the end of 2022. The company, which wholly or partially
owns more than 82,000 apartment homes in 12 states, has a long history of opposition to rent
11
control and other tenants’ rights. In 2020, they donated more than $8 million to a successful
campaign to block California’s Prop 21 initiative aimed at limiting unfair rent increases and
preserving affordable housing.
Jobs With Justice and the Private Equity Stakeholder Project found that AvalonBay also
continued to file eviction notices during the pandemic while pocketing state and local subsidies.
Health care executives
Centene
Centene CEO Michael Neidorff died in 2022, leaving his heirs a “top hat” plan valued at the end
of last year at $328 million – the second largest in the S&P 500. Neidorff made his enormous
fortune by providing government-funded insurance for seniors and low-income families
through Medicare and Medicaid. Centene is the nation’s largest insurer for Medicaid, which the
federal government expanded significantly during the first few years of the pandemic. As of
February 2023, Centene had paid $939 million to settle cases brought by at least 17 states over
claims of overcharging for pharmacy services.
Pfizer
Fueled by Covid vaccine profits, Pfizer CEO Albert Bourla enjoyed a 37 percent increase in the
value of his deferred compensation account over the past year, from $29 million to $44 million
at the end of 2022. Bourla’s tax windfalls from deferred comp come on top of the windfalls from
his company’s mastery of corporate tax avoidance schemes. According to a landmark 2017
Institute on Taxation and Economic Policy report, the drug maker operated 157 subsidiaries in
tax havens and held $199 billion in profits offshore for tax purposes, the second highest among
the Fortune 500. Pfizer currently has 76 lobbyists working to keep pharmaceutical prices high
and tax bills low.
CVS
Former CVS CEO Larry Merlo ended his career on a high note. Buoyed by government-
subsidized Covid vaccines and tests, the pharmacy chain enjoyed record profits and a soaring
share price in 2021. That helped bump up the value of his deferred compensation from $87
million in 2019 to more than $122 million at the end of 2021. That sum is enough to generate a
$753,000 monthly retirement check for the rest of Merlo’s life.
12
Narrowing the Retirement Divide
Ensuring a dignified retirement for all will require action on many fronts. A web of tax and
labor policies, inter-woven with racial and gender discrimination, has protected and favored the
wealthy white men who run most our country’s large corporations. Here, we highlight just four
steps towards fixing our retirement system so it provides for the rest of us.
1. End the double standard in government retirement benefits
Corporate executives should be subject to the same rules that govern the retirement assets of the
people they employ. Over the years, diverse political leaders have embraced this basic
principle. Some examples of legislation that could reduce inequality in deferred compensation
plans:
2020 CEO and Worker Pension Fairness Act: This bill (S.3341) revises Section 409A of the tax
code, which currently allows executives to shelter unlimited amounts in accounts where their
money can grow tax-free for years and years until they withdraw the funds. Under this bill,
executives would owe taxes on their compensation when it vests.
The bill includes exceptions for deferred compensation at “substantial risk of forfeiture,”
defined as compensation conditioned on performance targets for future services. To protect
rank-and-file employees at start-up companies who often receive equity-based pay, it also
exempts qualified and incentive stock options, but only for those who are not “highly
compensated” (i.e., individuals who own 5 percent or more of the company or whose income in
the previous year exceeded a certain threshold, currently $150,000).
Revenue from the bill, estimated at $15 billion over 10 years, would be transferred to the
Pension Benefit Guaranty Corporation to shore up multiemployer pensions, plans negotiated by
two or more employers with one or more labor unions.
2017 Republican Tax Reform: The CEO and Worker Pension Fairness Act described above is
largely based on a similar provision (Section 3801) in the original mark of the Tax Cuts and Jobs
Act, prepared by Republican House Ways and Means Committee Chair Kevin Brady. The
revenue estimate on this proposal was $16.2 billion over 10 years. The provision failed to pass
out of the committee.
2013 Senate Finance Committee staff report: This report on tax reform options includes
several potential changes to nonqualified deferred compensation, including repealing the IRS
code section related to such plans (409A) and taxing employees on this compensation on a
current basis or when it is earned or vested. It also cites a proposal by then-Senator Hillary
Clinton to impose a $1 million annual limit on deferrals. The Senate passed a similar proposal in
a 2007 minimum wage bill but the provision was dropped in conference committee.
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2. Expand Social Security and require CEOs to pay their fair share
To narrow the retirement divide, it will not be enough to reduce public subsidies for lavish
executive retirement accounts. We also need stronger labor rights, a federal minimum wage
increase, expanded defined benefit pensions, and other pro-worker policies so that ordinary
Americans can afford to save more to ensure financial security in their golden years.
Perhaps most importantly, we need to expand Social Security, the key pillar for retirement
security for most Americans, particularly low- and moderate-income families who receive little
to no tax benefits. Funding for expansion could come from lifting the wage cap on payroll taxes
so that CEOs and other high earners pay roughly the same share of their total income into the
Social Security fund as ordinary workers. Under the current wage cap of $160,200, people who
make more than $1 million a year stop paying payroll taxes in February, while most working
people pay all year.
In direct contrast to the private sector retirement divide, Social Security’s benefits are
progressive, favoring low- and middle-income workers. A worker retiring now after earning
$45,000 in 2022 would receive a benefit equal to about 34 percent of his or her pay, while a
retiring CEO who earned $9 million last year would receive a benefit that replaced just 0.43
percent of that pay, according to the Social Security Administration’s benefit calculator.
Across-the-board Social Security benefit increases, combined with targeted increases for low-
income workers and other vulnerable groups, would make an enormous difference in American
seniors’ quality of life.
3. Cap retirement benefits for major federal contractors and subsidy
recipients at the level received by the U.S. President
Taxpayer money should not be used to widen the retirement divide. The executive branch
should wield the power of the public purse to demand that companies receiving large federal
contracts and subsidies not provide executives retirement benefits that are worth more than
what the President of the United States receives. Former presidents receive a pension equal to
the salary of a Cabinet secretary, currently set at $235,600.
When Marillyn Hewson retired as CEO of mega-contractor Lockheed Martin in 2020, she had
$63.2 million in her deferred compensation plan and $54.5 million in her pension.
4. Increase retirement benefit transparency
In researching this report, we were frustrated by the lack of publicly available data needed to
get a clearer picture of employer-provided retirement benefits and how much they are actually
helping workers prepare for their golden years. We recommend requirements to disclose:
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Median 401(k) plan balances: Using companies’ Form 5500 reports, we could calculate the
average balance in their 401(k) plans. But given how top-heavy these accounts are, it would be
much more revealing if corporations were required to report median account balances.
Unclaimed matching funds: Many companies boast of their matching benefits, but these are
virtually meaningless if workers are paid so little they can’t afford to save enough to take
advantage of this perk.
CEO-worker retirement benefit ratio: Publicly held corporations are required to report the
ratio between their CEO and median worker pay. These pay gaps are staggering. But the CEO-
worker retirement divide is no doubt even wider. It would be most revealing if they were
required to report the estimated monthly retirement check the CEO and other named executives
can expect compared to the estimated retirement check for the firm’s median worker.
5. Tax Excessive CEO Pay
One way to reduce executive deferred compensation is to reduce executive compensation. The
Tax Excessive CEO Pay Act would encourage corporations to lower executive pay levels and lift
up worker wages. Under this bill, the wider a company’s gap between CEO and median worker
pay, the higher their federal corporate tax rate. Tax penalties would begin at 0.5 percentage
points for companies that pay their CEO between 50 and 100 times more than their median
worker. The highest penalty would apply to companies that pay top executives over 500 times
worker pay. Companies with pay gaps of less than 50 to 1 would not owe an extra dime. Similar
taxes are already raising revenue in two cities, San Francisco, California and Portland, Oregon.
Appendix: Methodology and Sources
Total non-qualified deferred compensation and median worker pay: Corporate proxy
statements filed with the SEC. To the end of year deferred compensation balance we added any
withdrawals or distributions made during the year, as these were part of the total retirement
package provided to the executives.
Monthly retirement check estimates: We used the annuity calculator found at
www.immediateannuities.com and selected: male, age 65, New York, and immediate payout.
The calculations were performed on May 3, 2023.
401(k) plans: Form 5500 filings with the U.S. Department of Labor. To calculate the share of
eligible participants with zero balances, we used figures for total participants and participants
with account balances as of the end of the plan year. We double-checked these figures against
calculations in the Free ERISA database managed by Benefits Pro. To calculate the average
401(k) plan balance at Walmart, we divided total assets by total participants, based on data from
the company’s Form 5500, “Annual Return/Report of Employee Benefit Plan,” filed with the
U.S. Department of Labor, September 12, 2022.
