Financial services executives reap big retirement benefits
Some banks aided by federal bailout
While top executives at some financial services companies gave up raises and bonuses in the face of public anger over taxpayer bailouts, one of their perks is holding up: huge retirement benefits.
Several Massachusetts banks and financial companies last year added hundreds of thousands of dollars, in one case millions, to support the retirement benefits of their top officers, according to annual securities filings the institutions have made in recent days. The huge sums mostly are for special supplemental retirement plans that are available only to top executives at these companies, and not rank-and-file employees.
These are not a backdoor raise or reward for executives who did not get bonuses and other compensation because of a bad year. Rather they are long-existing commitments by companies to pay their executives a set benefit at retirement. To build up toward that amount, the companies usually have to make sizable commitments, regardless of how well or poorly those executives performed in a given year.
In some cases, companies have to increase the amounts toward executive retirement funds to compensate for lower returns in those accounts if, for example, interest rates decline as they did last year.
The furor over bonuses for some employees at AIG International Group has focused public attention on the sizable checks employees received at firms that were bailed out by the federal government or received some taxpayer support. Less noticed, though, are the rich retirement benefits. That's partly because firms only recently began to disclose the value of executive retirement benefits in their annual proxy statements, which are filed this time of year ahead of yearly shareholder meetings.
Equilar, a California compensation consulting company, said the average additional value in 2008 to a chief executive's retirement plan was $1.23 million, based on its review of those firms that have filed proxy statements. In 2007, the average was $1.38 million.
These executives continue to accumulate enormous benefits while fewer rank-and-file workers have guaranteed retirement benefits. Just one-third of workers in mid- to large-size companies were in so-called defined benefit plans in 2007, down from 52 percent in 1995, according to the Employee Benefit Research Institute.
Some compensation specialists say the executives' sums are far more than what any individual needs for retirement.
"Retirement packages are supposed to help you if you're unable to save for retirement. I don't believe any of these guys could have spent all the cash they've earned in their careers as CEOs," said Paul Hodgson, senior researcher at the Corporate Library in Portland, Maine, which researches executive compensation and corporate governance issues for shareholders and insurers.
At
The Boston financial services company also received $2 billion in taxpayer funding last year as part of the federal government's efforts to shore up credit markets.
Logue participates in State Street's basic pension plan, available to all eligible employees. But federal law limits how much companies can contribute and employees can receive from these basic pensions. To provide additional compensation to their top executives, companies such as State Street create additional, or supplemental, retirement plans that are not subject to contribution and benefit limits. Logue has not one, but two such supplemental retirement plans.
In 2007, State Street froze the basic pension plan for all its workers and said it would instead increase contributions to their 401(k) plans, which are subject to the ups and downs of investment markets.
Logue's benefits under the standard pension plan are valued at $277,813. Meanwhile, the value of one of his supplemental plans is $1.8 million, and the second is $23.2 million.
The pension benefits were disclosed in the proxy statement State Street filed last week.
A State Street spokeswoman, Carolyn Cichon, said the executive retirement benefits are intended to help the company retain its top talent. Contributions for Logue, she added, are high because he has worked 19 years at the company.
This month, the British parent of Citizens Bank, the
Like regular pension plans, the supplemental plans are typically based on the executives' years of service and compensation over time. The longer the tenure, and the higher the pay as the executive serves, the bigger the retirement benefit. The plans typically aim to match 65 percent to 70 percent of an executive's total preretirement yearly income, similar to what rank-and-file employees are advised to plan on saving for, said John Gagnon, an executive compensation consultant in Reading.
The traditional versions of these plans promise to pay the executives a set amount at retirement, regardless of how the company performs.
That promise goes against the prevailing trend of executive compensation, so-called pay for performance, in which much of the executives' overall pay, including bonuses and stock awards, are based on company performance.
In 2002,
For chief executive Ken Lewis, the value of his accrued benefits in the frozen plan is $50.3 million.
However, Bank of America has a second supplemental account for its executives, a so-called pension restoration plan, which limits company contributions to the first $250,000 of an employee's yearly compensation.
The value of Lewis's benefits in that account is currently $2.5 million.
Lewis, 61, has been at the company 40 years. Bank of America received $45 billion in taxpayer funds under the government-investment program.
Timothy Vaill has also been at his firm,
As Vaill, 67, approached retirement, Boston Private said it has to accrue a large amount each year in order to fully fund the new account in a short period of time. In 2008, the bank accrued $610,728 to Vaill's account, which is now valued at $5.4 million.
Last year was difficult for Boston Private, which reported a fourth-quarter net loss of almost $25 million because of declining values of holdings and reserves for larger loan losses. Its management team, including Vaill, did not receive bonuses. Boston Private also received $154 million in taxpayer money in November.
The parent of Rockland Trust,
Spokesman Ralph Valente said the bank had to increase its contribution to make up for lower returns from falling interest rates.
Also, Valente said the bank recently began using new mortality tables that forecast a longer lifespan for Oddleifson, 50, and thus more years in which his pension would have to be funded.
Independent received $78 million in taxpayer funds.
Another local company that received federal aid is LSB Corp. of Andover, the parent of RiverBank, which got $15 million in taxpayer funds.
LSB chief executive Gerald T. Mulligan, is enrolled only in the small bank's 401(k) plan and does not get a supplemental retirement package.
Mulligan said such supplemental plans aren't appropriate for a public company because they don't align the interests of the chief executive with shareholders.
"The stock price doesn't have to do anything, and the executive still receives the benefit," he said.
Ross Kerber can be reached at kerber@globe.com. 
