Senator to Target Tax
Boon To Firms Insuring Workers

Sen. Jeff Bingaman, Democrat of New Mexico, said he will introduce legislation to prevent companies from taking out life insurance on rank-and-file workers simply to glean tax-free income.

The move comes in response to growing controversy over recent disclosures in The Wall Street Journal that hundreds of companies have taken out billions of dollars in life insurance on millions of workers, with the company as the beneficiary, often without the workers' knowledge or consent.

"I cannot support providing tax benefits to insurance policies taken out on the lives of rank-and-file employees when there is no benefit to them," he said. "This was not the intent of Congress. Not only is it unfair to the workers, but it is unfair to the majority of businesses [that] refuse to engage in these abusive transactions." Sen. Bingaman is a member of the Senate Finance Committee and chairman of the Senate Energy Committee.

Companies take out policies on broad groups of employees because the money placed in the policies grows tax-free. As employees and former employees die, the cash payments the company receives also are tax-free. Employers use several forms of "corporate-owned life insurance," or COLI. "Key man" policies protect the company from financial loss if a key executive dies. "Executive" policies are purchased by the company as a benefit for top executives; the policies enable executives to shelter their compensation from taxes and ultimately receive it tax-free. Companies also put money into "janitors insurance," which provides benefits to the company, but usually nothing -- or a small token payment -- to the workers' families.

The use of COLI has been controversial for years, and Congress has occasionally taken aim at its use as a corporate tax shelter. In 1996, the IRS disallowed some deductions claimed by companies for janitors insurance and more recently has attempted to put some brakes on the amounts of money companies are stuffing into executive policies.

Sen. Bingaman says that while there are legitimate reasons for companies to use COLI (in particular to purchase key-man coverage to pay for succession costs), he says that using the programs to generate tax breaks is potentially abusive. Companies are using life insurance to capture tax benefits for executive pay, for example, which isn't something the tax code allows them to do. "We shouldn't allow companies to do indirectly what they aren't allowed to do directly," he says. He will ask the Joint Committee on Taxation to calculate how much the practices are costing U.S. taxpayers.

Thursday, Reps. Gene Green (D., Texas) and Nancy Pelosi (D., Calif.) held a news conference to discuss legislation Mr. Green introduced last week that would require employers to tell employees and former employees and their families whether it has coverage on their lives, and how much. The bill, HR 4551, has more than 30 co-sponsors.

Ed Krawczyk, a welder and member of the United Steelworkers in Kansas City, Mo., raised another issue. In 1992, Mr. Krawczyk said his employer at the time, Western Resources Inc., took a policy on its employees. The company will receive a payment when he dies; it didn't disclose how much. "Why does a company I no longer work for have the right to benefit from my death?" Mr. Krawczyk asked. A spokeswoman for Western Resources, Topeka, Kan., said employees who retire from the company are eligible to receive a $5,000 death benefit from the program.

-- Shailagh Murray contributed to this article.

Note from ReclaimDemocracy.org: According to the Houston Chronicle, Fortune 500 corporations hold death insurance policies that benefit the corporation on 5 to 6 million workers. Wal-Mart Corporation, which holds 350,000 or so such policies, is being sued in a Texas class-action suit for strong-arming employees into paying into such policies.

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