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Corporate Bonanza From ‘Dead Peasants’
By Charles Walker
The California Labor Federation this year successfully lobbied politicians in the state’s capital to ban the corporate practice of insuring the lives of rank-and-file workers (often without the workers’ permission or knowledge) and then legally pocketing the payout as workers die. That’s right, the sole beneficiary is the corporation, not the worker’s family or estate. These policies are entirely separate from the life insurance that’s part of a company’s benefit plan. To some the practice brings to mind the days of European serfdom, when the serf was tied to the land. Perhaps that’s why such policies are commonly called “dead peasant insurance.” Angie Wei, Legislative Director for the Federation has said, “Many Fortune 500 companies, such as Wal-Mart, have engaged in this medieval practice…employers should not be profiting from the death of workers.”
In some cases the insurance death payout goes into a firm’s general fund. But in other cases the death payout goes to bolster a corporation’s retirement package for corporate executives. In fact insurance companies, such as Travelers and Northwestern, tout the death plans as a means of recovering the cost of executive compensation plans. The press reported that Portland General, an Enron subsidiary, uses money from its dead peasant policies to pay into a compensation plan for the firm’s managers and top executives, and to help boost supplemental executive retirement payments (Houston Chronicle, April 25, 2002). The Wall Street Journal reported that more 100 large corporations carry dead peasant policies (also known as corporate-owned life insurance) on their employees, reported the AFL-CIO’s Work In Progress (Sept. 8, 2003).
It might take a university-trained accountant to fully enumerate all the advantages for a corporation that buys dead peasant policies, but several are well known tax shelters. PACE, the Chemical Workers Union, says, “Until recently, the premiums for these policies were considered a tax-deductible business expense, as with any other employee benefit. This means that the cost was partially underwritten with tax dollars collected from the same employees who were working and never saw any of the benefits from the “dead peasant” policies. And then there is more. Proceeds from the insurance policies are not considered taxable income to the person (or corporation) who receives it, which means that after taking a generous break for the cost of the policy, the corporation receives a tax-free gift after its employees pass away”(Pacesetter, July-August, 2002). Moreover, a firm is allowed to borrow against the face value of the policies.
A corporation may continue to keep the policies in force on workers who leave the firm. It’s possible that some workers may unknowingly have their lives insured under policies from multiple past employers. In Georgia, companies may even insure a worker’s immediate family. One wit says that the scandalous insurance gives new meaning to the phrase, “Working Stiffs.”
Wal-Mart, says commentator Jim Hightower, “is reported to have taken out 350,000 of these death policies.” He reports, “One consumer watchdog has noted that this insurance can make employees worth more dead than alive to low-wage companies like Wal-Mart.” Further, “money-grubbing outfits like Wal-Mart…can take out as much as $750,000 worth of life insurance on a single clerk, janitor, or other employee. For the Wal-Marts the laws are jiggered so they collect tax-free investment income on these policies while employees are alive, then receive the life insurance payout tax-free as employees die off”(Hightower Lowdown, May 24, 2002).
Texas laws allow only those with “an insurable interest” to be a beneficiary of life insurance policies. Wal-Mart skirted the Texas law by buying dead peasant policies covering its Texas employees in Georgia. A Federal judge has ruled that under Texas law, Wal-Mart did not have an insurable interest in the lives of its employees and therefore acted improperly. If the judge’s ruling is not overturned the, the death payouts revert to a dead worker’s estate, under Texas law (Houston Chronicle, June 6, 2002).
However, a recent check of insurance companies’ web sites revealed that dead peasant policies are still offered, despite the Texas ruling. For now, anyway, an untold number of workers at hundreds of companies are unknowingly still worth a great deal to their employers dead, as well as alive.
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