Insiders giving themselves special pensions

Defined benefit pension plans give pensioned a defined amount of money each year for the rest of their life.  Unfortunately for shareholders, the risks on this liability are very difficult to estimate and can get out of hand.  Warren Buffett explains the relevant concepts in a 1975 memo to Katherine Graham.  Shareholders are likely better off if the company offered its employees a defined contribution plan rather than a defined benefit plan.

When reading a DEF 14A filing (I have a previous post on things to look for in a DEF 14A filing), it may be worth checking to see if management is giving itself a defined benefit plan while the workers beneath them are receiving a defined contribution plan.  I believe that this is an area where management can basically hide some of its compensation.  Intel and TJ Maxx are examples of companies that have defined benefit plans for management.  In the grand scheme of things however, this practice isn’t that bad compared to other ways that insiders compensate/enrich themselves.

*Disclosure:  Long TJX via calls.  No position in INTC.

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