A January 28 article in the Los Angeles Times triggered two effects: a hissy spat with the Times’s rival Southern California news organization, the Orange County Register; and a new spotlight on a once-common but highly controversial corporate practice that had declined in usage the past several years.
The Times got word that its competitor’s parent, Freedom Communications, had notified some employees that it wanted to take out insurance policies on their lives in a bid to generate new funding for its pension plan. Under a 2006 federal law, companies must get employees’ consent to buy life insurance on them in order to get tax-preferred treatment of the policy.
The newspaper’s article called the insurance plan “a supremely ghoulish financial strategy.” It also contained several derogatory comments about things seemingly unrelated to the matter, like recent layoffs at the Register and the publication’s allegedly failed content strategy.
Register publisher Aaron Kushner fired back in a memo to employees, encouraging them to print the article and “put it somewhere as a reminder of the kind of newspaper and journalism of which we want no part.” Life insurance is not ghoulish, he wrote; its purpose is to benefit “the people we love and care about most.” This particular initiative’s purpose was solely to benefit Register employees, he cried.
Times writer Michael Hiltzik, who had penned the original article, then issued a follow-up in which he wrote, “We didn’t say life insurance was ghoulish. We suggested that the practice of insuring the lives of rank-and-file employees for corporate purposes was ghoulish…. Kushner must know that the practice is controversial and has often been abused.”
He further branded Kushner’s suggestion that the insurance program solely benefited employees’ pension fund as disingenuous. To the extent that proceeds from the life insurance policies fund the pension plan, he pointed out, Freedom won’t have to use other resources to meet its legal obligations to fund the plan.
The back-and-forth sniping touched on many of the issues that led Congress to place significant restrictions on company-owned life insurance, or COLI, in the 2006 law. Since then, new COLI policies have mostly been taken out on key, highly compensated corporate executives (called key-man or key-person life insurance), a still-common practice that is exempt from provisions of that law.
Increasingly fewer new policies on the lives of rank-and-file employees — sometimes called “dead peasant” or “janitor’s” policies — have been written since the law’s enactment, and the values of those policies that are written are less, says Neel Lane, an attorney with Akin, Gump, Strauss, Hauer & Feld. The practice is not, however, illegal in most states.