WSJ: Banks Using Life Insurance Policies on Low-Level Employees to Fund Executive Bonuses
By Susie Madrak Wednesday May 20, 2009 5:00pmSuch poetic irony, don't you think? The deaths of the little people working for corporate behemoths goes to pay bonuses to their company's top earners. Hey, it may be legal - but it sure lacks class.
Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries.
Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.
Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. Wachovia Corp. has $12 billion, J.P. Morgan Chase & Co. has $11.1 billion and Wells Fargo & Co. has $5.7 billion. (Wells Fargo acquired Wachovia at the end of last year.)
The insurance policies essentially are informal pension funds for executives: Companies deposit money into the contracts, which are like big, nondeductible IRAs, and allocate the cash among investments that grow tax-free. Over time, employers receive tax-free death benefits when employees, former employees and retirees die.
Though not improper, the practice is similar to what is known as "janitors insurance," an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions. And some families have complained that employers shouldn't profit from the deaths of their loved ones.
Login or Register to post comments.
BloodSucking [Expletive Deleted]s !!!
how BLOODSUCKER was the first thing I thought of too!
I wonder how many of their insured low level employees can now expect to be "heart-attacked", or "stroked", or "car-accidented" or "fell-down-the-stairs-to-deathed"?
Corporate America's 21st Century version of the pink slip.
Well, you are worth more to you employer dead than alive. Wal-Mart has life insurance policies on 350,000 employees (approximately 1 third of their work force). The have discovered that hire people over 65 to work for $6 an hour, then taking out a $1.5 million life insurance policy on them, pays very well. Especially since the employer has all your health records and hires people who are experts to determine life expectancy.
Seems like we could make a buck insuring these bastards.
http://www.youtube.com/watch?v=fyLwGK-lsCk
To these greedy heartless bastards
I used to sell life insurance(on the bright side, I was terrible at it) and to insure someone's life you had to have an "insurable interest".
In other words you had to prove that you would suffer financially bt the death of the insured. Usually this meant that you were a dependent or were dependent on that person's income.
While this is usually a relative, partners or indispensible employees could be covered.
But this describes low-level, easily replaced employees. I think that they could be in trouble, legally.
You are exactly right as far as 'insurable interest', however the best way to avoid legal prosecution is to own the government, which these people do.
Still, I would like a more detailed and competent report since this poster has shown time and again she doesn't do any research.
...but I have doubts about this story, too.
This is so patently illegal and unethical that...
Oh, sorry.
Forgot that American businesses gave up ethics during the Reagan administration.
You are so correct demochristian,
Another angle to this game is outside of the United States. AIG among other insurance companies set up shop around the world in countries like Uganda. They sell “mandatory” life insurance to employees in areas like Malawi and Darfur (Conflict Zones) for companies owned by corrupt government officials and or suspected terrorist groups. The employee dies, the family is either unaware or incapable of filing a claim, so the death benefit goes to the company by default.
When the company and or individual goes to open an account or deposit money in a western bank, they circumvent the “Anti-terror finance laws” by showing the source of the money being a death benefit from life insurance (technically a legitimate source of funds, therefore not illicit).
It is another form of dead peasant life insurance used to exploit a loophole in the banking laws.
Bank examiners require it. The income tax now requires it. Most of not all of this insurance covers the life of officers and/or directors, not low level employees and these same officers, directors and/or their bebenficiaries more often than not get healthy fringe benefits funded indirectly by these policies. This is a deal with the deviln the death game that the greedy play and now the rules since 101(j)
Bank examiners and such require what is called "key man insurance." It protects the company in the event of the death (or sometimes disability) of employees that are so important that the company itself would be in danger without them. The importance of that person to the company IS the insurable interest.
But there is no need to insured that many people, especially in a large company. And there is no way that, in the real world, any large company has hundreds or thousands of people so important that the company couldn't function without them. In fact, in the real world, a large company probably has no truly indispensable employees - they'd be negligent if they did so.
I have partnership insurance on my ex-business partner, but he had to sign that he agreed to it. I couldn't just decide to take out insurance behind his back. This was in Quebec and I don't know if the laws are different in the US.
We don need no stinkin' laws!
This is being fueled in part by the fact that the Federal Government is considering taking over the regulation of insurance.
Here is a link the a hearing this week on the topic.
http://www.house.gov/apps/list/hearing/financ...
COLI/BOLI is a $3 trillion a year business for insurance companies. AIG is heavy into it.
It is really more of a tax dodge, basically hiding profits in premium payments. That is the purpose behind it.
Since insurance is ultimately regulated by the states, not the federal government, it depends on the state the insurance policies is written in.
The fact of the matter is the NAIC is in the back pocket of the Insurance industry and they are okay with it.
Children of low level employees are butchered for fois gras for the executive lunch room...
Sometimes known as an Insurance Commisioner, who should routinely void these payouts.
I just re-checked the legal definition of insurable interest. The WSJ is again wrong. It is improper and illegal.
If an individual did this he would be Shawshanked.
It is the only traditional insurance product where you can bet on something you don't own, that is another person's life.
Were they underwritten by AIG, or whatever their new and improved moniker is?
If the policies are cancelled, will little Timmy give them a bailout, and then tell us how great its gonna work out for the taxpayers?
is Dead Peasant (or Peon) insurance.
Tell me how stripping this practice will bring on the collapse of the capitalist system. Alrighty then, let's make sure we keep it.
Of course, deferred compensation is another word for PENSION. But only bloodsucking, anti american unions have pensions. And all of the pensioners are making more in retirement than they did actually working (urban myth # just bend over and take it in the ass).
I would go on, but then the sitemonitor would absolutely ban me for life for writing just what I'm thinking we should do with these "individuals".
How can you say that? It has class written all over it!
BLOODSUCKER class that is. Or as wittle boy bush called them - his base.
"And some families have complained that employers shouldn't profit from the deaths of their loved ones."
Duh. Considering these folks have the morality to sink the world economy, sending billions of lives into spiraling turmoil, and walk away with tens or hundreds of millions in golden parachutes, I don't think they'd have many qualms in say, paying someone to make sure those insurance policies pay out early.
Do you recall the slogan of the SLA (Symbionese Liberation Army)? "Death to the Fascist Insect that Feeds on the Blood of the People!"
The Capitalist pigs don't even try to hide what they truly are anymore. If Americans will wake up, pull their heads out of their asses, get some guts and take action, we can rid our nation--and maybe the world--of these sociopathic insects once and for all. Political momentum is on our side right now, so we can do it without massive acts of violence. Demonstrations, strikes, boycotts and voting can do it at this time. But if we fail to act, you can be certain that we will face great violence and bloodshed in the future. Capitalism should and will be extinguished one way or another, so let's do it now peacefully.
Go check the WSJ archives. This same lazy clown writing for the WSJ znd the then Clinton-dem adminsitration (though i have no problem with the content) wrote basically the same article 10 years ago when the Clinton admin made the exact same budget proposal 3 years running in 1998, 1999 and 2000, failing each year to get the proposal passed. This article is nothing new. Cut and pste at best, though the points raised therein are not quite as valid today as they were ten years ago.
that this is unlawful income tax evasion. If the executives are benefitting from this and nobody has to pay taxes on the benefits it could be illegal. There also be a case made for insurance fraud.
Does no one remember the hoohah when WalMart did this years ago?
Those who fail to learn the lessons of history are condemned to repeat it. Pay attention to something beyond American Idol!
This youtube video is actually a year old, but it mostly explains the concept of a Dead Peasant Policy, AKA Janitor Insurance.
http://www.youtube.com/watch?v=ik30ijaBgUA
to go fuck himself (in a kind way) when he asked me to sign up for this bullshit. They tried to tell everyone that it was an effort to keep health care costs down, fucking lying assholes. I knew something was up.... BTW they are keeping life insurance policies on people even after they stop working there. There are not enough cuss words in the world to describe what I think of this practice.
As a person with a nonfunctional birth defect, I've been dealing with this s*** for years. The gov actually won a lawsuit against my former employer for billing fraud, and I know darnwell that the HR manager's wife worked--still works--for an insurance company and he played this game well, almost certainly with money stolen from employee stock purchase withdrawals. Wifey claimed my policy after an old gal with my first and last names died--she changed the SSN and they got the bucks. All of my employers have purchased DPI on me, and many have ended up in jail or have lost their businesses. Take a lesson from a middle-aged peasant, start planning payback early, and stay healthy so you can outlive the brass.
Many Big businesses have such policies on their workers but the retirees pay annual income taxes on amounts in excess of $50,000.
Some States do not allow the Company to claim those death benefits.
http://www.rmi.gsu.edu/rmi/faculty/klein/RMI_...
In Georgia, in fact, employers can even collect death benefits on the children and spouses of their employees.
Many states, including New York, California, Michigan, Ohio and Minnesota, require employers to get workers' prior consent, even though many workers may not be fully aware of what they are consenting to.
As a result, most employees have no clue that they are covered. Court documents show that CM Holdings not only didn't ask for employee consent, but hid the janitors coverage internally as well. The company is battling the Internal Revenue Service over tax deductions taken in connection with the policy.
Unions may have some ability to force companies to disclose whether they have janitors insurance, under National Labor Relations Board rules, says Jon Hiatt, general counsel for the AFL-CIO. Now that they know about it, "there will very likely be a number of unions seeking to find out about the practice," he says.
ANOTHER REASON WHY REPUBLICANS HATE UNIONS.
has been around for eons. I've had this site bookmarked since 2004...
Dead Peasant Insurance
Wall Street Journal: "The practice is as widespread as it is little-known. Millions of current and former workers at hundreds of large companies are thus worth a great deal to their employers dead, as well as alive, yielding billions of dollars in tax breaks over the years, as well as a steady stream of tax-free death benefits."
Enron Subsidiary took out Dead Peasant Insurance
Workers lost their retirement; benefits are paid to executive's retirement fund
Could a group of employees purchase insurance on the officers of the company where they work? Then when the SOBs die they can collect. Sorta like those lottery pools you read about every so often, only more fun because you could dance around singing, "Ding-dong the witch is dead" while drinking the champagne.
Employees no, stock holders, yes.
It is called a “Defective Trust Fund.” The reason it is defective is because the money that is put in the trust fund is strictly for the purpose of paying the life insurance premiums. Unlike a normal trust fund that holds capital and then invests the dividends it makes off the capital.
Unless the low-level employee consents to such chicanery, shouldn't this be treated as insurance fraud?
Brokers also advised Wal-Mart to use a Georgia grantor trust to
establish the situs for the COLI policies. This was important because for the policies to be recognized as life insurance, the beneficiary must have an “insurable interest”in the employee whose life is being insured.
These broad-based COLI programs, unlike the original key man insurance programs, were designed to provide significant profit to the corporate policyholder through tax deductions. As structured, the corporate policyholder would pay a substantial premium in the first three years, and borrow back approximately 90% of the premium at a relatively high interest rate. The corporate policyholder then would take a tax
deduction for the interest payments. Since Internal Revenue Code §264 does not permit policy premiums to be paid through policy borrowing during years four through seven, the COLI plans provided for “loading dividends” or partial policy surrenders and cash withdrawals to cover most of the premiums for those years. Upon the death of an insured employee, the corporation, or the beneficiary it designated,
would receive the policy payment. Thus, through a relatively small investment of cash, the corporation would get the benefit of a large tax deduction on its loans and the cash value of the COLI policies would accumulate interest tax free.
to (attempt to. but it will NEVER be enough!) satiate the greed of bank executives. Hedge fund executives and other corporate "titans" figured out that it works well to pillage and decimate pension funds to line their pockets. So the banks might as well go after their employee's life insurance funds to fill the never- full-enough pockets of gluttonous bank executives. American corporate greed totally sucks. It perverts and corrupts everything in its self-serving path.
Login or Register to post comments.