WSJ: As Workers' Pensions Wither, Those For Executives Flourish

AT&T's controller, John Stephens, confirmed that executive pensions cause a bigger drag on earnings, per dollar of liability, than pensions for others. He added that AT&T, like some other companies, has informally earmarked an undisclosed amount of assets for paying executive pensions in the future. But while these assets earn investment returns, they don't lower pension expense, because the assets aren't irrevocably dedicated to this purpose. The executive pension plan, in other words, isn't funded.

Why don't companies just fund executive pensions? Chalk it up to taxes. Contributions that companies make to regular pension plans are tax-deductible and grow tax-free. Congress set that rule to encourage employers to provide pensions for the rank and file. But a company that contributes assets to an executive pension plan gets no tax break. In fact, there's a tax penalty: Money contributed to such a plan is considered current compensation to the executives, and they owe personal taxes for it.
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When General Motors cites retiree costs, the giant auto maker has a point: It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8 billion at the end of last year. But $95.3 billion had already been set aside to pay those benefits when due. All of these assets are earning investment returns, which offset the pensions' expense. GM lost $10.6 billion in 2005. But deep as its losses have been, they would have been far worse without the more than $10 billion per year in investment income that the GM pension plan for the rank and file generates. The pension plan for GM executives is another matter. Unfunded to the tune of $1.4 billion, it detracts from GM's bottom line each year.
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GM has often said its U.S. pension plans added about $800 to the cost of each car made in the U.S. in 2004. It declines to say how much was due to executive pensions.