Wall Street Journal

May 20, 2009

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. Source Article

If I understand this correctly, these companies have life insurance policies on their employees, past or present. Does this mean even the ones that have been laid off? Hmmmmm……..

~Susan~