Senate Finance Committee chairman Max Baucus, D-Mont., has begun an investigation of the tax status of earnings by Prudential Financial on survivor death benefit accounts for life insurance policies it sold to members of the armed services.
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Baucus noted that recent press reports have indicated that upon the death of a policy holder of Prudentials Servicemembers Group Life Insurance program, Prudential holds the survivor benefits in its own corporate account, instead of paying the benefits to their rightful owner and not crediting earnings on the funds to the beneficiaries.
If Prudential is exploiting the grieving widows and distressed families of fallen soldiers, it certainly may be time to reassess the tax treatment of profits made off this abuse, said Baucus in a statement. Instead of reaping huge profits off these tragic losses, Prudential should give the families of these fallen soldiers the interest they earned on their money the interest they deserve. Life insurance companies should not take advantage of the shock of losing a loved one just to make a quick buck.
A class action suit filed in July claimed that Prudential collected over $144 million in investment income through the SGLI program in 2009 alone, earning a 5.69 percent return. However, Prudential paid beneficiaries only 1 percent interest on the income. Baucus requested information about Prudentials handling of the survivor benefit accounts to ensure the tax treatment of Prudentials profits is appropriate and fair.
Press reports allege that upon the death of a SGLI policy holder, under the default option, Prudential sends a checkbook which includes checks that can be drawn against the benefit owed to the beneficiary rather than providing a lump-sum payout, Baucus noted. The checkbook effectively slows down the payment to the beneficiary. Prudential then invests the payment owed to the beneficiary in a retained-asset account which is a part of Prudentials own corporate investment account. A small portion of the investment income generated in the account is paid back to the beneficiary while Prudential pockets the rest.
I am very concerned about the utilization of retained-asset accounts and their potential harm to the survivors of our servicemembers, said Baucus. If the press reports are accurate, Prudential is earning over five times as much interest as is being provided to the beneficiaries. These investment earnings are derived from death payments that belong to the beneficiary, not to Prudential. To further the goals of equitable tax administration, please answer the following questions regarding Prudentials retained-asset accounts.
Prudential Financial spokesman Bob DeFillippo said the company would cooperate with Baucuss probe, but claimed that it was based on an inaccurate and misleading article published by Bloomberg.com. Look at this as a lump sum distribution, said Prudential Financial spokesman Bob DeFillippo. How can you not define this as a lump sum distribution?
Prudential also denied the allegations in what it called an open letter to the military community.
The articles have been inaccurate and reckless because they fail to point out that beneficiaries have always been able to get all of their money when they want it by using the Alliance Account, the company said. Prudential does not withhold a penny of the money that belongs to beneficiaries. In fact, we pay interest on it from day one. This information is clearly explained to beneficiaries.
The company also objected to suggestions that it was profiting from the deaths of members of the armed forces and claimed to have lost money under the SGLI contract over the last 10 years. These reports are causing unnecessary anxiety among the beneficiaries of our men and women in the armed forces, not to mention the millions of consumers who have used Alliance Accounts and been satisfied with them for decades.