According to corporate filings, 1.2 million Wal-Mart employees lost 18% of their 401(K) retirement plans as the market plunged. The retailer’s top executives, however, didn’t face such risks, thanks to a guaranteed 6.6% return. Wal-Mart spokesman said: “We’re proud of the benefits we offer to our hourly associates”.
Approximately 25% of top executives at major U.S. companies had gains in their retirement-savings plans in 2008, even though employees had significant losses in their retirement accounts, according to WSJ. The guaranteed fixed returns on executive plans often explain the gains in their accounts.
The reality of today’s corporate-pay market is not just the growing wage gap; it’s the different levels of risk that executives and employees face in their retirement accounts. The difference has never been more evident than the last year. Though the stock market has grown since then, most employees still have a long way to go to recoup their losses. The S&P’s 500-stock index is still almost 30% down from its peak in Oct 2007.
Fixed returns are the perks that companies say are required to attract and retain executives during difficult times. They are generally justified by the need to offset the risk executives face by receiving a part of their pay in company shares. Nearly all of the execs who didn’t incur losses worked for companies whose share prices were down in 2008.
Many executives also had large investment losses last year as their deferred-compensation plans generally provided the same investment elections available in the employees 401(K) plans. But top executives participate in even more elite plans, which face less risk because of the guaranteed returns and give access to investment options that aren’t available to other employees, such as fixed-income funds.
Some companies don’t provide guaranteed returns and their executives often saw losses in their deferred-compensation savings.
With the S&P 500 down 30% from its peak in Oct 2007, some employees never will recover their losses.
