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Thursday, February 24, 2005

Dead Janitors 

When Mrs. Dietrichson asked if it was absolutely necessary that her husband be informed about the insurance policy she hoped to take out on his life, Walter Neff understood immediately that hubby's prospects for a long and happy life were not bright. (Nor, as it turned out, were his.) Millions of American workers are in roughly the same position as that poor sap Mr. Dietrichson: insured behind their backs by unscrupulous bosses who stand to pocket a quick buck if they die. One small difference: unlike Phyllis and Walter, the bosses and the insurance companies are getting away with it.

We thought we were well past the point of being shocked by any corporate business practice, however sordid, and we are therefore grateful to Pessimist at The Left Coaster for proving us wrong with an excellent post on the underpublicized but apparently widespread phenomenon of COLI, or Corporate-Owned Life Insurance:
Here’s how it works. Big companies with a number of low-paid employees (the practice is also known as "dead janitors’ insurance") buy life insurance on those low-ranking employees — sometimes without their knowledge — to get tax breaks, as well as to collect benefits when a covered employee dies. The Atlanta Journal-Constitution reported, "Corporations gain not merely from the tax-free life insurance benefits they receive when current or former employees die, but also can borrow money against these policies. Many companies even deducted the interest on these loans from their taxes." It is legal in some states, but not in others (which have emerged from the ghoulish Dark Ages of squalid business dealings). For some of these companies, death benefits go to pay for executive bonuses and perks.
Which companies are we talking about? You'll recognize at least a few of the names:
An attorney for Hartford Life Insurance, which sells such policies, estimated that one fourth of all Fortune 500 companies have COLI policies on the lives of 5-6 million people. Wal-Mart has taken out COLI on 350,000 employees.

National Convenience Stores got $250,000 when one of their employees was killed in a robbery. Wal-Mart got $64,000 when an employee died of a heart attack. The families of these employees got nothing.

Some corporations use COLI money to pay for benefits for their executives. Portland General, a subsidiary of Enron, uses COLI money for supplemental retirement pay for its executives. They have $80 million in a trust fund for this purpose.
Legislation banning COLI passed the Washington state Senate on Wednesday. A bill recently introduced in the U.S. Senate would "require that employees insured by COLI policies receive written notices about the coverage and about the possibility that the coverage might continue even after the employees leave their jobs. Insured employees also would have to give their written consent. Last year, a similar COLI provision had support in the Senate but died in the House."

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