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.
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.
And I thought CDOs were pointless speculation. I’m sure there’s a good airport thriller novel in there somewhere. But what I don’t get is why the insurers are letting them take out these contracts. The only way I can see both parties making money on this–and let’s ignore the dead person–is that the tax breaks make this worthwhile for the insured. Kudos to Obama for trying to close this tax expenditure, since this isn’t wealth creation, but a transfer from working Americans to wealthy executives.