Top five US executives hoard $9bn tax-free for retirement as workers face limits

theguardian.com:

The top five executives at the US’s largest companies have amassed close to $9bn in tax-free retirement saving accounts while many of their employees have struggled to set aside any funds for retirement, according to a new report released on Thursday.

The report, A Tale of Two Retirements, from the Institute for Policy Studies and Jobs With Justice found the top five executives at S&P 500 firms held a combined $8.9bn in special tax-deferred accounts at the end of 2021. Income taxes will be due on this compensation when they withdraw the funds, but in the meantime, they benefit from the tax-free compounding of investment returns.

These so-called “top hat” plans allow unlimited tax-deferred retirement while ordinary workers face strict limits on their 401(k) retirement plan contributions. The survey found that at many of these companies, a sizeable percentage of workers – in some cases as much as half – had no money in their 401(k)s.

Under a top-hat plan, an executive who sets aside $1m a year for seven years would wind up with an estimated $1.3m more in after-tax earnings and $1m less in tax liabilities than an executive who does not defer compensation.

At Walmart, CEO Doug McMillon held more than $169m in his deferred compensation account at the end of 2022 – enough to generate a monthly retirement check of more than $1m, according to the report.

Meanwhile, among eligible participants in Walmart’s 401(k) plan, nearly half (46%) have zero balances saved for retirement. The median pay at Walmart is $27,136.

Thomas Pritzker, billionaire chair of Hyatt Hotels, is sheltering $91m from taxes in his deferred pot. The report found 36% of eligible participants in the hotel chain’s 401(k) plan have not been able to set aside any funds.