Washington’s months-long debate over raising the debt ceiling started with some prominent Republicans calling to slash Social Security.
After some public outcry, debt ceiling negotiators agreed not to touch Social Security — this time. But now that the deal’s been signed, House Speaker Kevin McCarthy (R-Calif.) says he’s launching a commission to push “uncomfortable” cuts to this central pillar of our retirement system.
This is scary news for the estimated 40 percent of Americans age 65 and older who would fall below the poverty line if they lose these benefits. Among those aged 56-64, an even larger share — 42 percent — have no retirement account savings and thus are likely to have to rely on Social Security.
Corporate pay practices have contributed to the retirement insecurity that afflicts so many American families. For decades now, the heads of big businesses have been slashing employee retirement benefits while feathering their own nests — often with taxpayer support.
For one tale of our country’s stark retirement divide, let’s take a look at CVS.
Long-time CEO Larry Merlo stepped down in 2021 with more than $122 million in his company retirement account — enough to generate a monthly check of around $753,000 for the rest of his life.
How did the pharmacy executive acquire his gilded nest egg? Like CEOs at most big U.S. corporations, Merlo got a boost from Uncle Sam.
Under the tax code, corporations can set up special deferred compensation accounts exclusively for their top executives. CEOs can stash unlimited pre-tax earnings in these funds, where their money can grow and grow — tax-free — until they retire.
Ordinary American workers, like CVS store managers and shelf stockers, don’t get access to these gold-plated retirement accounts. The drug store chain does offer 401(k)s, but, unlike the unlimited executive plans, these tax-deferred accounts come with strict contribution limits — currently $22,500 per year, or $30,000 for employees over age 50.
This double standard in government retirement subsidies is fundamentally unfair. Why should we give preferential treatment to the wealthy executives who need it least?
For low-wage workers, of course, those 401(k) contribution limits aren’t the biggest obstacle to retirement security. If your paycheck is barely covering your bills, you can’t afford to save much at all for your golden years. At CVS, where median pay (including health benefits) is $56,129, fully 36 percent of eligible participants had zero balances in their 401(k) in 2021.
A new report I co-authored for the Institute for Policy Studies and Jobs With Justice finds that the retirement disparities at CVS are the norm throughout much of corporate America. S&P 500 CEOs with special deferred compensation accounts had average balances of $14.6 million at the end of 2021.
By contrast, at major employers like Walmart, Home Depot, Hyatt, Target, Chipotle, Tyson Foods and McDonald’s, more than a third of eligible 401(k) plan participants have not one dime in their accounts. In fact, at Chipotle, 91 percent of the 81,000 enrollees in the company’s 401(k) had zero balances in 2021.
For all their talk about reducing debt, McCarthy and the Republicans refused to consider raising any revenue from taxing the wealthy. But instead of cutting benefits to Americans who’ve worked their whole lives, McCarthy’s new commission should call for getting rid of tax preferences for gilded CEO retirement accounts and use the extra revenue to expand retirement benefits.
In the past five years, both Democrats and Republicans have introduced proposals to eliminate these exclusive accounts, with revenue estimates ranging from $15 billion to $16.2 billion over 10 years.
Congress should also raise the wage cap on Social Security payroll taxes. Currently, those CEOs pay no payroll taxes into the system on anything they make above $160,200. The Economic Policy Institute estimates this cap has cost the Social Security trust fund $1.4 trillion.
Lawmakers should also increase the minimum wage so more workers can save for their retirement and not have to rely entirely on Social Security.
Such commonsense actions would require leaders to put human needs above political point-scoring. To make our nation less vulnerable in the face of crises of all sorts, we should demand nothing less.
Sarah Anderson directs the Global Economy Project and co-edits Inequality.org at the Institute for Policy Studies. She’s a coauthor of the IPS report “A Tale of Two Retirements: Why CEOs get bigger retirement subsidies than the rest of us.”