Imagine your spouse is a janitor or teller at a bank. Now imagine she passes away and you find out the bank took out a life-insurance policy on her. But the bank isn’t sharing the payout with you. A documentary film that opens nationwide Friday is reviving a debate about employer-owned life insurance. A Congressman from Chicago says the film inspired legislation that would prohibit such insurance on all but top-paid employees.
Until the 1980s, companies could take out life-insurance policies only on key personnel. Then many states started allowing employer-owned insurance on rank-and-file workers. That coverage became known in business circles as janitors insurance or even dead-peasants insurance.
Buying this coverage and borrowing against it helped hundreds of large firms generate billions of dollars in tax breaks. They also got a stream of tax-free death benefits.
MOORE: It’s actually their best interest not to provide you with health insurance.
Michael Moore slams employer-owned life insurance in his new film, “Capitalism: A Love Story.” He spoke in Chicago after an advance screening.
MOORE: Statistics show that those without the health insurance will die three to five years ahead of people with health insurance. They can actually rig the system through unsafe working conditions -- overworked, overstressed -- all that stuff feeds into making sure that maybe you won’t live as long. They’re going to collect on you.
In the late 1990s, the IRS began challenging some of the tax deductions. But Houston-based attorney Michael Myers says firms found new ways to deduct income from life insurance on employees.
MYERS: The fact that many companies do it doesn’t make it legitimate.
A 2006 federal law requires employers to get the worker’s permission. But Myers says many firms skip that step
MYERS: Every lawsuit I’ve had has involved a situation where there was no consent.
It’s hard to find out just how many employers carry the so-called dead-peasants insurance and how much the assets are worth.
The cash value of policies on bank workers is public. Bank of America reported that its total as of June 30 was $17.4 billion. Next was the Wells Fargo subsidiary Wachovia with $12.1 billion.
Spokespersons for Bank of America and Wachovia declined to speak on tape for this story. Both sent statements saying the income from the policies helps defray the cost of employee benefits.
FAILLA: What assurance we have of that, I’m not certain.
New York-based attorney John Failla advises companies about the insurance.
FAILLA: I just know based on my own experience, both in addressing coverage matters under these programs and in reviewing the various disclosures on these programs, that the overwhelming purpose for them is to enhance the ability to provide more fulsome benefits for employees.
But Rep. Luis Gutiérrez (D-Chicago) is raising a red flag. He chairs the U.S. House Subcommittee on Financial Institutions and Consumer Credit.
This week Gutiérrez introduced a bill that would ban employer-owned life insurance unless the worker earns at least a million dollars a year from the company. He presented the legislation Wednesday on the House floor.
GUTIERREZ: In a nation where millions of full-time workers have no health insurance, maybe if we prevent companies from betting on the death of their employees, they’ll invest in the health of their employees.
For violations, the bill would provide civil and criminal remedies.