Bank Execs Profit on Death of Employees....disgusting

Via clarkhoward.com, the WSJ is reporting:

Bank executives profiting on the death of employees?!
Bank executives at Wells Fargo, Bank of America and JP Morgan Chase are benefiting financially from the deaths of their employees, according to a shocking report in The Wall Street Journal.

What they've done is to take out life insurance on their rank and file. This insurance is used as a tax dodge and it pays bonuses to their key executives when an employee dies.

Worse still, American taxpayers subsidize this special tax break that funnels tax-free income to the big cheeses that are named as the beneficiaries. This should be a criminal act of tax evasion, according to Clark.

The Wall Street Journal reports that Bank of America and Wells Fargo both have $17 billion each in these life insurance policies. Chase has $11 billion.

So if an underling dies, do they have a party to celebrate the money they make? The employee's family gets nothing, not a cent.

Last week, there was proposal to take away this tax deduction. That's too little, too late. It should be a criminal offense. Period.

In one recent court case centering on this controversial policy, a former bank employee died after being fired. Then a check showed up at his residence for $1.6 million. But the check was made out to the bank, not the late employee's widow. It turns out the insurance company mis-mailed it!!

Disgusting, reprehensible and unacceptable, according to Clark. The giant banks must be dismantled. We need a serious anti-trust law here.

http://clarkhoward.com/liveweb/shownotes/2009/05/20/15796/

even as a secretary, they had insurance policies on me.

Walmart got into some public relations trouble a few years ago - 2000, I think, maybe 1999 - when it came to light that they were even taking life insurance out on their clerks. Some guy died, and WalMart made like $100K on his death.

I don't remember all the details, but it made the news.



I'm curious what the special tax loophole is that the writer talks about, and curious about how he "knows" that the insurance money goes straight into the pockets of the top execs. He's curiously short of footnotes, heavy on declarations.




I don't mind companies taking out insurance policies on their executives. I do have a problem with them doing it on their rank and file. Both the companies I worked for gave me the option of also riding along on their life insurance at their cheap rate, which was wonderful. The WalMart guy did not have that option, and I"m sure many of the lower ranks don't get that option.

The basic idea is that when the income and estate taxes were created, the question was whether the proceeds of a life insurance policy would be taxed as income or inheritance.

The insurance industry said that it was cruel to tax widows and orphans on the proceeds of life insurance, and Congress agreed.

But this loophole creates a tax avoidance for other insureds.

For example if you are an old rich person, with incurable cancer, who is likely to die in a year, you might think of yourself as uninsurable. Let's say you have $10 million. A life insurance company may, however, be willing to sell you a $10 million policy for $10 million -- ie at a very high premium because of the certainty of your death -- with his children as beneficiaries.

The effect is that you've managed to pass your $10 million worth outside of income and probate taxes because you've converted your $10 million net worth into insurance proceeds. It's kind of like money laundering -- you've laundered wealth into insurance proceeds.

This may have been changed since I studied it many years ago.

The companies in this case are the insured party and are eligible for the widows and orphans exemption of life insurance proceeds.

As for it going directly to bonuses, I doubt it. It would be property of the company, not of the individual execs.

Once you dig into the tangled web of senior executive compensation, excessive salaries seem an insignificant part of the outrage. The BODs are supposed to be minding the store in this respect but they're in on it bigtime.

Change your bank.

to get the insurance money. And the band Poison sued their record label for forgery when they found out about the policies. But businesses should be required by law to split the policy with the next of kin.

:headbang:
rocktivity

That'd put an end to that kind of crap pretty damn quick.

Actually there is something called "split life insurance" that does exactly that. It allows the pay out to be split between the company and employee based on the percentage of the premiums paid.

But in the case company owned life insurance, the company pays the entire premium, therefore they are due the full pay out. Why should they split it?

Most companies large enough to use company owned life insurance already give their employees either 1x or 2x their pay in free life insurance under Section 125, with the option for employees to but more with their own money at group rate preimums (i.e., much lower than they could get as a n indiviual policy).

the policy shouldn't be legally valid. I doubt, however, that the policy is optional. If it were, I'd agree with you.

:headbang:
rocktivity

"Nothing to be mad about
Corporations take out life insurance policies on key employees to protect the corporation against financial losses resulting from the death of those employees. Ordinary people take out life insurance policies to protect their families against financial losses resulting from their own deaths. There's nothing disgusting or criminal about either act. There isn't a "special tax break" that taxpayers are subsidizing. Life insurance death benefits are not subject to income tax because the money used to purchase the policies has already been taxed. It would be outrageous if death benefits were taxed!"

______________

I'm having a hard time thinking that the death of an employee, even if he/she was a top executive causes anything but a short, temporary financial loss for the company. The deceased employee can be readily replaced. So the loss to the company may amount to $20,0000 or $50,000, but the insurance policy was for $100,000 or $250,000 and the company makes a tidy profit.

And, like an above poster mentioned, do these companies take out life insurance on some of the rank and file employees? What is a "key" employee and who determines who is key? Even after the above explanation, I still think it stinks, ethically.

I think he called it dead peasant insurance or something like that.

It is a disgraceful practice and goes to show that the greed of these jerks knows no bounds. I wish it would be outlawed.

Since they make money every time an employee drops dead, they have no reason to spend money to keep him healthy.

If a stranger took out a life insurance policy on you and you died, the cops would assume that he was with the mob and try to prosecute him for murdering you.

to work, harrass, and humiliate their employees to death.

They get a bonus when an employee dies? Are you effing kidding me?!?!?! They should get investigated for murder. :mad:

It is a disgusting practice.

Where do these people go to learn how to do such despicable business practices. This is so gross it is beyond belief.

This is used all the time by large companies, usually to fund non-qualified deferred compensation programs. Its called COLI (company owned life insurance). What many aren't understanding here is that companies usually take out the insurance on the life of those who participate in the plan, not all the rank-and-file employees. All it is is a tax advantaged means to fund the eventual pay out to the plan participants.

The company pays the premiums on the policies, then when the employee eventually dies the money goes into the deferred compensation fund from which all participants are drawing. It really isn't much different than an individual paying an insurance policy so that upon his death his family gets the proceeds.

You also have to understand that this doesn't make money for the company, unless you think insurance companies are too stupid to charge the appropriate premiums. The insurance companies make out like bandits.

Actually the only morally questionable thing in the process is the degree to which the insurance brokers go to hide how much they are making in commissions, and seeing how much they can overcharge the companies through confusing "explanations" of their product.

Far more fun for people to play the almighty self-righteous "Corporations are EVIL!!!!" card and have a hysterical fit and feel good about their moral superiority, than to actually consider the truth.

COLI and BOLI (the bank-owned form of the product) are pretty arcane, so I'll give folks the benefit of the doubt since probably few have heard of it and fewer still have any idea of how it works or why companies would sign up for it.

No doubt the knee-jerk reaction is 'Evil Corporations' if you don't know much about this product.