Wednesday, May 20, 2009

Profits Inevitable As Death and Taxes

Banks getting taxpayer bailouts are also cashing in on the demise of people who work for them or once did.

Today's Wall Street Journal has a tutorial explaining how banks are holding $122.3 billion in life insurance on workers and retirees with themselves as beneficiaries in order to escape taxes, inflate their earnings and to fund bonuses and pension benefits:

"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...

"Companies don't use the policies as piggy banks to pay for compensation and benefits. Rather, they benefit from keeping the money in the contracts."

Gains on investments are not only tax free but reported as income each quarter to offset interest on deferred pay owed to executives.

According to the Journal, banks have nearly doubled the amounts of such insurance in the past four years. Bank of America, which has taken $52.5 billion from taxpayers so far, holds an estimated $17.3 billion of such investments in the deaths of employees while Wells Fargo (including its Wachovia acquisition) has a similar amount awaiting future obituaries.

You may not be able to get blood from a stone, but American banks are doing very well with corpses.

1 comment:

Michael @ The Life Insurance Insider said...

The Wall Street Journal loves to beat on these corporate and bank owned life insurance plans on a regular basis. There have been some incidents where companies like Walmart insured the lives of their lower level employees and it kind of came off as shady, but in most instances the companies and banks that use this insure the top level employees that are making these decisions. Also the Wall Street Journal never seems to mention the fact that the insurance companies and banks that invest in these policies prefer that the people stay alive as long as possible to keep the money invested in the plan. Insurance companies definitely don't want to pay death benefits, they never do and if the banks collect death benefits they have to go and find somewhere else to invest the money.