The wealthy CEOs of America’s biggest corporations are on track for net monthly retirement checks worth up to 38 times the average annual salary of their employees, according to a new report.
Researchers say a ‘double standard’ is emerging in US retirement savings as corporate executives skim off billions – while many of their employees have failed to save a single dollar in their 401(K).
And the problem is exacerbated by the huge tax benefits given to retiring executives, who often receive “deferred compensation” – otherwise known as “top hat” – from the plans that come with a host of benefits. ‘fiscal advantages.
While most employees face strict limits on how much they can save tax-free in their 401(K), these “top hat” plans don’t have a cap on contributions.
These offers also allow executives to defer payment of any tax on saved income until it is withdrawn in retirement. This gives them time to enjoy the compounding returns of investments and accumulate masses of wealth before paying a penny in tax.
Researchers say a ‘double standard’ is emerging in US retirement savings as corporate executives skim off billions – while many of their employees have failed to save a single dollar in their 401(K)
Walmart CEO Doug McMillon had $169 million in his deferred compensation account at the end of 2022
The top five executives of S&P 500 companies held a total of $8.9 billion in their tax-deferred accounts at the end of 2021, according to the report’s “A Tale of Two Retirements.” Institute for Policy Studies and Jobs with Justice.
In one of the most extreme examples, Walmart CEO Doug McMillon had $169 million in his deferred compensation account at the end of 2022.
That’s enough to generate a monthly retirement check worth $1,042,300, or about 38 times the median annual salary of its workers, which is currently $27,136.
Additionally, the report found that an astonishing 46% of Walmart employees who qualify for a 401(K) plan don’t have any money in them. Findings are based on the company’s fiscal year 2021 numbers.
Walmart points out that Walmart stresses that it matches all of its employees’ 401(K) contributions at a rate of 6% and has already invested more than $1.5 billion to do so in its last fiscal year.
McMillon has already been criticized after Initiated reported that his annual salary of $25.3 million was worth 933 times the salary of a median Walmart employee.
At the same time, the chain is also closing a slew of locations across the country.
Meanwhile, Hyatt Hotels Chairman Thomas Pritzker is said to have a nest egg worth $91 million.
That equates to a monthly retirement check of $562,600, more than ten times the average annual salary of its employees, which is currently $40,395.
And 36% of Hyatt employees who qualify for a 401(K) haven’t saved anything in theirs so far.
Ralph Lauren (left) is said to have $54 million in his deferred compensation pot while Thomas Pritzker (right) – chairman of Hyatt Hotels – has $91 million
Fidelity found that a measly 29% of people are on track to cover all their retirement expenses, up from 38% in 2020
Meanwhile, 41% of Ralph Lauren employees eligible for a 401(K) have a zero balance in theirs.
This is despite CEO Ralph Lauren having $54 million in his deferred compensation account, the equivalent of $335,300 a month.
The median annual salary for a Ralph Lauren employee is $26,670, according to the report.
It comes after experts repeatedly sounded the alarm that regular employees aren’t saving enough in their 401(K) funds.
A report released last month by America’s largest 401(K) plan provider, Fidelity Investments, found that just 29% of people are on track to cover all their living expenses in retirement. , compared to 38% in 2020.
Currently, regular employees have an annual limit on their $401(K) contributions of $22,500 – or $30,000 for employees over age 50.
Many companies often match a portion of their employee dues. However, this makes no sense for the lowest paid workers who cannot afford to set aside part of their income at all.
By comparison, executives on a premium plan have no limit on how much they can save — and don’t immediately have to pay tax on the money they invest in it.
In the meantime, they can enjoy compound growth on investments – allowing their wealth to swell.
Compound interest is the process that occurs when you earn interest on both the money you initially set aside and the interest you have already earned on the starting amount.
This essentially creates a “snowball” effect as wealth grows exponentially.
For example, if you save $100 in a bank account and earn 10% interest in the first year, you will have $110 at the end of the first year.
This means that in the second year, you then earn 10% interest on $110. Over time, the amount of interest paid to you continues to grow.
Research from the Institute for Policy Studies and Jobs with Justice found that an executive who sets aside $1 million each year for seven years would have about $1.3 million more in after-tax income than if they set aside $1 million each year for seven years. had paid tax on his annual income.
And they will also pay $1 million less in taxes.
The Institute for Policy Studies is now calling for an end to retirement wealth disparity.
A Walmart spokesperson said: “Since 2015, Walmart has increased average hourly compensation by 54% and starting salaries by more than 90%, while CEO compensation has increased by approximately 28%.
Walmart continues to invest in frontline wages, and in January 2023, we announced another wage increase, bringing our average US hourly wage to over $17.50 per hour.
Dailymail.com has contacted all the other companies mentioned.