Posted on 07/03/2007 8:28:15 AM PDT by Excuse_My_Bellicosity
TAMPA - When Karen Armatrout died in 1997, her employer, Wal-Mart, collected thousands of dollars on a life insurance policy the retail giant had taken out without telling her, according to a lawsuit filed in U.S. District Court.
Armatrout was one of about 350,000 employees Wal-Mart secretly insured nationwide, said Texas attorney Michael D. Myers, who estimated the company collected on 75 to 100 policies involving Florida employees who died.
Myers is seeking to make the Armatrout lawsuit a class-action case on behalf of the estates of all the Florida employees who died while unwittingly insured by Wal-Mart.
"Creepy's a good word for it," Myers said. "If you ask the executives that decided to buy these policies and the insurance companies that sold them, they would say this was designed to create tax benefits for the company, which would use the benefits for benevolent purposes such as buying employee medical benefits.
"If you asked me, I would say they did it to make more money."
Wal-Mart spokesman John Simley said he could not comment because the company has not been served with the lawsuit.
The company settled two lawsuits with employees represented by Myers in Texas and Oklahoma, one for about $10 million and one for about $5 million. He said Karen Armatrout came to his attention when Wal-Mart mistakenly gave her husband's phone number to an Oklahoman who called the retailer inquiring about the settlement.
Myers said he also has filed a lawsuit against Wal-Mart in Louisiana.
Payouts Up To $80,000
Richard Armatrout, who is retired, does not want to speak publicly about his case, Myers said. Armatrout did not respond to a message left by the Tribune.
Karen Armatrout was 50 when she died of cancer, said Myers, who said she had worked several years in the pharmacy of the store on West Waters Avenue.
Myers said the policy payouts ranged from $50,000 to $80,000, depending on the person's age and gender. They were taken out on all full-time Wal-Mart employees who, in December 1993, were between ages 18 and 70 and participated in the medical benefits plan.
He said the company stopped taking out the policies in 1995 but continued to receive payouts on employees who died, even those who had left Wal-Mart.
Wal-Mart, which said it canceled its policies in early 2000 because it was losing money on the arrangement, says the program was intended to reduce its income taxes to help pay rising employee health care costs. Workers were notified and given the opportunity to opt out, the company said.
The Armatrout lawsuit says the policies were all written in Georgia, where the laws allowed such policies to be obtained.
The lawsuit says Wal-Mart used confidential information it received from employees for use in their employment, such as Social Security numbers and dates of birth, to obtain the life insurance policies.
Myers said this corporate practice is not uncommon. He estimates that up to 25 percent of Fortune 500 companies have taken out such policies on employees. The vast majority of the time, the employees didn't know, Myers said.
The practice evolved over time, Myers said. Corporations started by taking out large life insurance policies on key executives, getting tax breaks when they paid the premiums and collecting the payouts.
IRS Not Pleased, Attorney Says
The amounts of those policies grew to the point that Congress limited how much a company could insure an individual for, Myers said. Insurance companies then suggested buying lots of small policies on companies' work forces, the attorney said. He said the Internal Revenue Service has labeled the practice a sham and has successfully litigated the issue against several corporations.
Myers said his law firm has sued corporations for the practice, including Winn-Dixie and Fina Oil and Chemical. The latest case is its first in Florida.
The practice spread beyond top executives in the 1980s when the industry successfully lobbied states to allow employers to claim an "insurable interest" in the lives of rank-and-file workers.
Many employers seized on the practice because they could borrow against the policies, and the interest paid was tax-deductible. Congress closed that loophole in 1996, but COLI - corporate owned life insurance - remained a popular investment strategy.
The chief appeal was that interest accrues over time on the money in such policies. When a worker dies, the employer collects without paying taxes on the gain.
In 2001, premiums on such policies swelled to $2.8 billion from $1.5 billion the year before, according to a report by CAST Management Consultants of Los Angeles.
Information from The Associated Press was used in this report. Reporter Elaine Silvestrini can be reached at (813) 259-7837 or esilvestrini@tampatrib.com.
What in the world am I doing behind the keyboard?
key man insurance.
this is just hurt walmart image to force settlement insurance.
I got some bad news for you, you’re going to wind up dead n matter who does or doesn’t have an insurance policy on you.
I know that must be shocking, and I’m sorry to have to break it to you. But alas, that’s one of the problems with being human.
Unless the policy is in effect after the employee leaves like a regular term life would be, then that is kind of creepy.
We have been doing it here for years, whether the employee wants us to do it or not he can’t stop us from doing it, it’s our businesses expense to replace him if he dies and the policy is dirt cheap.
I think that doing it in secret is the only problem. However, the company claims that employees were notified. If they were, then this is a non issue.
Key man life insurance could save your business
Contemplating the death of your company leaders is pretty dismal subject matter. But think of the consequences - businesses have bitten the dust due to the death of just one employee. Key man life insurance is an affordable way to prevent your business from sinking after a critical employee passes away.
Key man life insurance works like individual life insurance - when the insured dies the policy pays out a benefit. Instead of an individual insuring himself or a family member, however, the business owns the policy and pays the premium. If the insured dies, the business is the beneficiary and will receive the policy payout...
How are we defining "key"??
If by 'key' you mean manager, department head, etc. yes, but the typical WalMart greeter? Are they key?
It should be against the law for anyone to take out insurance on you without your knowledge - pure and simple.
Who’s paying the premium? A good business venture, IMHO.
A great thing - if done in the sunshine, with all participants knowing and approving. What makes WalMart's position weak is that is was done in secrecy.
You quite obviously don’t understand this subject at all.
>>>I fail to see what the big deal is.
Ho ‘bout the fact it was done without people’s knowledge? Would you want your employer taking out a policy on you without telling you about it?
The difference is that your company is probably small enough where losing an employee will affect the company. Wal-Mart is big enough that they are just playing statistical games. Let's say they figure 0.1% of the employees would die in a year. Insurance will then be 0.11% (or so) of the total insured value. If an average number of Wal-Mart employees die, Wal-Mart falls behind because of the insurance overhead - except that it looks like the insurance payout is tax-free. So the payout of 0.1% times the total insured value (tax free) is more than the premiums of 0.11% times the total value minus tax deductions because the insurance is a "legitimate" business expense.
And of course, Wal-Mart is the ONLY store that sells crap from China. /s
From management perspective I would think notifying an employee of this would be good:
"You are so valuable to us that we have ...."
Everyone likes to feel important and to occasionally be reminded of this.
Why? How does it hurt the employee?
WalMart Hit Piece Ping..............
My employer has insurance policies on every single employee in the engineering department, most of the high end people in the rest of the company, and everybody that’s manager or above. The only reason I found out about it was when we did a gathering of all of engineering and I asked the person that was arranging the travel of the people in my office why we were spread across so many flights. It’s no big deal, doesn’t bother me in the least.
Myers said this corporate practice is not uncommon. He estimates that up to 25 percent of Fortune 500 companies have taken out such policies on employees.
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