The above title came from an opinion piece in the April 29th edition of The Moscow Times, an English-language daily newspaper. One of its former editors wrote it and commented rather unfavorably on "janitors insurance," the subject of a recent series of articles in the Wall Street Journal.

For those who don't know, janitors insurance is corporate-owned life insurance (COLI) taken out on the lives of employees--from the executive level all the way down to the lowest-paid. COLI policies have received intense scrutiny from the IRS over the years including the contesting of deductions for the interest of policy loans.

The Wall Street Journal series says that a number of larger companies and banks for years have been buying these life insurance policies often without the knowledge of the employees. The policies, against which loans can be made, often pay off the companies in hundreds of thousands of dollars when a current or former employee dies. And, those tax-free proceeds go right down to a company's bottom line.

Of course, the employer must have an insurable interest in the employee and meet any other requirements under state law; and those laws vary widely. Some permit the purchase without notification to the employee, some don't address janitors insurance, and some require written consent from the employee before the policy is bought.

Most companies don't disclose their janitors insurance program and their employee incorrectly assumes the only coverage on his or her life paid for by the company is a group term policy that doles out a small amount, sometimes as low as $5,000. In those instances, the employee's beneficiaries never find out that the company received $250,000 because of the employee's death.

One employer that disclosed its program denied that it was hoping to benefit from the death of its employees, indicating that the insurance just gave them additional funds to pay for the benefits for all of its employees.

What these companies are doing is still legal, tremendously efficient tax wise, and represents a remarkable return on their investment. Probably, the idea to implement these programs came from one of the company's advisors, such as their CPA. What I haven't figured out quite yet is the ethical underpinnings. Maybe one of these companies or their advisors can enlighten me. I can be reached at Howard.Wolosky@amgpubs.com.

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