Congress Probes Prudential's SGLI Payouts

Lawmakers from both sides of the aisle are putting Prudential Financial under the congressional microscope for the company's policy of placing the death benefit payments of fallen troops and veterans into interest-earning accounts instead of immediately turning the money over to the deceased's next-of-kin.

A "ton of documents" was turned over to the House Committee on Government Oversight on Aug. 23 as part of its investigation, Military.com has learned, and the ranking member of the Senate Banking, Housing and Urban Affairs Committee has called for hearings next month to investigate the practice.

The documents turned over to the House oversight committee were requested by committee Chairman Rep. Edolphus Towns, D-N.Y., in an Aug. 10 letter to Prudential. Requested documents include copies of standard Servicemembers Group Life Insurance and Veterans Group Life Insurance policies and of all materials sent to the deceased's next-of-kin.

In his letter to Prudential, Towns said he was "concerned that some beneficiaries of active duty service members and veterans life insurance may not fully understand their right to obtain immediate, lump-sum payment of their benefits. Moreover, these retained asset accounts are essentially low interest bank accounts that, unlike bank deposits, are not insured by the Federal Deposit Insurance Corporation, although they may be protected by state insurance guaranty funds."

Towns also pointed out the company's policy of paying the beneficiary 0.5 percent on investment earnings while keeping more than 4 percent.

Depending on what investigators find among the documents, Towns could call for hearings into the retained asset accounts next month.

The Senate is already headed that way.

Sen. Richard Shelby, R-Ala., the ranking member of the Senate banking committee, said he will hold a hearing when Congress returns from its August break in September.

In a letter to committee Chairman Sen. Chris Dodd, D-Conn., Shelby said he was concerned over media reports suggesting that insurance companies may be unjustly profiting through retained asset accounts. He noted the claim that the accounts allow insurance companies to earn interest on the proceeds from the accounts -- which the insurers invest -- at a higher rate than they pay to the beneficiaries.

Prudential concedes that it earns more on the investments it makes using the accounts than the survivor owner of the account. Prudential earns 4.5 percent while the survivor earns 0.5 percent.

Prudential spokesman Bob DeFillippo told Military.com that the retained asset accounts are no different in this way than any bank savings account. In these, too, he said, the account owner receives a smaller percentage in interest on the money than the bank, which is investing it.

"It shouldn't come as a surprise to anyone that the way we're able to provide interest to the family is to invest it," he said. "We provide a fairly competitive interest [rate] to beneficiaries."

He also said the beneficiaries can take out the entire amount of the death benefit immediately.

"If you write a check for the entire amount to yourself and go to your bank, you have taken all the money from the death benefit and it's yours," he said. "Also, the idea that it's not your money when it's in the [retained asset] account is wrong. It is yours."

In a July 29 press release, meanwhile, Prudential acknowledged that the retained asset accounts are not FDIC insured, but said the funds are covered by state guaranty funds "of at least $250,000 in most states." Unless a service member opts to reduce the amount, however, he is automatically insured under SGLI for $400,000.