From the News of the Weird:
“A subtle but apparently widespread corporate practice came to light earlier this year when the family of a deceased Wal-Mart warehouseman in Texas learned that the company had taken out a $64,000 life insurance policy on him, naming the company as beneficiary. Companies often buy policies for their top executives, but so-called “dead janitor” policies are usually purchased in secret, as tax dodges. Critics say that such companies lose the incentive to make their workplaces safer if they stand to collect on employees’ deaths. Wal-Mart purchased about 350,000 such policies but canceled them this year after the practice was exposed. [Houston Chronicle, 4-16-02]”
I understand from elsewhere that this practice is also called the “Dead Peasant” policy.
Where is the money in this for these corporations?
So what exactly is the tax dodge here?
Unless the workplace was manifestly and highly hazardous, they couldn’t make a lot of money (enough to economically justfy the expenditure on the policies) by being beneficiaries of deceased or injured employees.
If the company wants to write off money as a tax loss, then they need something to waste it on. Insuring staff is novel but unlike giving to charity, there is a chance of payback.
So, which jobs have the highest death rates? In Wal-Mart I’d guess that they are the most dangerous and ones that employ the oldest/most infirm staff. Guessing again, I’d say that the dead janitor was the oldest and/or least healthy employee at the store in question. If so, the premium would be the highest (which is what Wal-Mart wants) and the chance of cashing highest.
Distasteful, perhaps immoral, but not illegal.
I found this via Google from the Houston Chronicle, referencing Enron (Portland General is/was a subsidiary):
This approach is used by Portland General to reward top executives with more than just their 401(k) and the traditional defined benefit pensions that are allowed by federal pension laws, which cap how much the company can contribute to the benefits.
Money from its “dead peasant” policies fund what are known as nonqualified deferred compensation plans. The advantage of these plans is that the limits on 401(k) and pension plans don’t apply.
" “Corporate-owned life insurance enables companies to recover the cost of nonqualified benefit plans that provide additional income and benefits to key and highly compensated employees,” boasts Northwestern Mutual’s Web site, which has a section promoting them.
And the cash value component of the company-owned plans – which build up value like a whole-life insurance policy – is an asset that can be used to offset liabilities, like promises to make enhanced executive retirement payments, according to the Travelers Life & Annuity Web site promoting them. "
So they get the tax advantages and the top creeps get extra money out of it??