Banks Use Life Insurance to Fund Bonuses

[babylonsister]

Banks Use Life Insurance to Fund Bonuses
Controversial Policies on Employees Pay for Executive Benefits, Help Companies With Taxes

By ELLEN E. SCHULTZ


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.

Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.

Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. Wachovia Corp. has $12 billion, J.P. Morgan Chase & Co. has $11.1 billion and Wells Fargo & Co. has $5.7 billion. (Wells Fargo acquired Wachovia at the end of last year.)

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.

more...

http://online.wsj.com/article/SB124277653430137033.html

[AndyA]

1. The banks are like drug addicts, addicted to executive bonuses!

One has to wonder what the incentive is to keep employees healthy...after all, when they die, the executives get money!

Break up the banks, if they're too big to fail, they're too big to exist, and their irresponsible and greedy business practices over the last few years are costing the American taxpayer too much money.

Break them up!

[nykym]

2. Simple fix

if it can be passed by our congress critters. Stipulate that all such types of insurance policies are terminated once employment ends. In the case of a worker still employed when their time is up one half of the proceeds from the policy to go to the surviving heirs. Highly doubtful that it would even reach the floor for a vote considering the weight the insurance & banking terrorists throw around.