Dead Peasant Insurance

[Disir]

Two weeks ago, the publisher of two Californian newspapers - the Orange County Register and Riverside Press-Enterprise - laid off 39 employees, including eight full-time newsroom staff and four part-time sub-editors and designers.

It was part of a restructuring programme by Freedom Communications, following 42 redundancies in December, as it seeks to centralise Press-Enterprise production at the Register's offices.

Then Freedom followed up that bad news by sending an email to the staff who remain informing them that the company wishes to buy life insurance for them.

But the beneficiaries of the million-dollar-plus policies will not be the employees or their families, but the company's pension scheme.

US newspapers fall out over 'dead peasant' insurance | Media | theguardian.com

Employees at The Orange County Register received an unsettling email from corporate headquarters this year. The owner of the newspaper, Freedom Communications, was writing to request workers’ consent to take out life insurance policies on them.

But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Reporters and editors resisted, uncomfortable with the notion that the company might profit from their deaths.

After an intensive lobbying campaign by Freedom Communications management, a modified plan was ultimately put in place. Yet Register employees were left shaken.

The episode at The Register reflects a common but little-known practice in corporate America: Companies are taking out life insurance policies on their employees, and collecting the benefits when they die.

Because so-called company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. Banks are especially fond of the practice. JPMorgan Chase and Wells Fargo hold billions of dollars of life insurance on their books, and count it as a measure of their ability to withstand financial shocks.

But critics say it is immoral for companies to profit from the death of employees, while employees themselves do not directly benefit. And despite a law enacted in 2006 that sought to curb the practice — companies now are restricted to insuring only the highest-paid 35 percent of employees, who must give their consent — it remains a growing, opaque and legal source of corporate profit.

“Companies are holding this humongous amount of coverage on the lives of human beings,” said Michael D. Myers, a lawyer in Houston who has brought class-action lawsuits against several companies with such policies.

Companies and banks say earnings from the insurance policies are used to cover long-term health care, deferred compensation and pension obligations.

“Life insurance is one of the ways of strengthening the long-term health of the pension plan and ensuring its ability to pay benefits,” Freedom Communications’ chief executive, Aaron Kushner, said in an interview.

And because such life insurance policies receive generous tax breaks — investment returns on the policies are tax-free, as are the death benefits eventually received — they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. Companies argue that if they had to finance such obligations with investments taxed at a normal rate, they would incur losses and would not be able to offer the benefits to employees.

But in many cases, companies and banks can use the tax-free gains for whatever they choose. “If you want to take that money and go build a new bank branch, fine,” said Joseph E. Yesutis, a partner at the law firm Alston & Bird who specializes in banking regulation. “Companies don’t promise regulators they will use it for any specific purpose.”

Hundreds of billions of dollars of such policies are in place, providing companies with a steady stream of income as current and former employees die, even decades after they have retired or left the company.

http://dealbook.nytimes.com/2014/06...icmst=1404164073000&bicmet=1419975273000&_r=0


There is something heinous with the above. There is no way to justify this practice. Really. Dead Peasant insurance has been around for awhile-entirely too long. I'm surprised that it has continued this long.