Veterans Agency Changes Terms for Prudential Claims
Sept. 14 (Bloomberg) -- Bloomberg Markets magazine's David Evans talks about an agreement between the U.S. Department of Veterans Affairs and Prudential Financial Inc. that enabled the insurer to withhold lump-sum payments of life insurance benefits for survivors of fallen soldiers. The veterans agency said today that Prudential will now send beneficiaries a check when they ask for a lump-sum benefit payment rather than keeping the money and mailing a checkbook. Evan speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
The U.S. Veterans Affairs Department said Prudential Financial Inc. will now send beneficiaries of VA life-insurance policies a check when they ask for a lump-sum benefit payment rather than keeping the money and mailing a checkbook.
The veterans agency will continue to offer a money-market type account that lets the insurer withhold payments of benefits for survivors of fallen service members, while making clear the funds aren’t insured by the Federal Deposit Insurance Corp. and the accounts aren’t endorsed by the government, the VA said today in a statement on its website.
Bloomberg Markets magazine reported on July 28 that Newark, New Jersey-based Prudential offers to hold lump-sum payments for beneficiaries in the company’s coffers. The insurer pays interest on the accounts and makes money by investing the funds. The accounts provide checkbook-like access and aren’t federally insured.
Prudential, the second-largest U.S. life insurer, is the sole provider of life insurance for 6 million U.S. military personnel, their immediate families and veterans. It will now provide three options for beneficiaries: a lump-sum check, a checkbook to allow periodic withdrawals from a Prudential account or 36 equal payments.
“The most important thing we can do is ensure that beneficiaries have options that are clear, competitive, and come at no personal cost during a time of emotional stress,” Veterans Affairs Chief of Staff John Gingrich said in the department’s statement today.
Removing Seal
Prudential must remove the seal of the VA’s Servicemembers’ Group Life Insurance, or SGLI, from checks, forms and letters and replace it with the company’s name and a subtitle: “Office of Servicemembers’ Group Life Insurance,” according to the statement. OSGLI is a wholly owned unit of Prudential.
Prudential also will be required to “conduct a follow-up contact” with beneficiaries whose accounts remain open after six months “to confirm the beneficiary understands the terms of the account,” the VA said in its statement today.
Prudential supports the VA’s changes and is pleased the company’s retained-asset accounts, known as Alliance Accounts, will continue to be offered, spokesman Bob DeFillippo said in a telephone interview.
‘Most Secure’
“The changes are necessary because of the confusion caused by the irresponsible reporting by Bloomberg,” DeFillippo said. “The Alliance Account is the most secure and efficient way for a beneficiary to receive a death benefit.”
Veterans for Common Sense, a Washington-based nonprofit advocacy group that has pushed for congressional intervention on the accounts, called the government’s action a positive first step. The new rules don’t help families that lost out on interest they could have earned by investing the funds the company held, said Paul Sullivan, executive director of the group.
“Veterans for Common Sense is pleased with the action of top VA leaders to begin addressing Prudential’s scandalous behavior,” Sullivan said today in a telephone interview. “However, VA reforms need to go further so Prudential repays families and the VA establishes rules and regulations so this doesn’t happen again in the future.”
Contract Amendment
The VA failed to inform soldiers and their families of an agreement it made with Prudential enabling the company to hold back payments, according to records made public through a Freedom of Information Act request.
An amendment to Prudential’s contract is the first document to show how VA officials sanctioned the payment practice that has spurred investigations by lawmakers and regulators. Since 1999, Prudential has used the so-called retained-asset accounts, which let the company withhold lump-sum payments due to survivors and earn investment income on the money for itself.
The Sept. 1, 2009, amendment to Prudential’s contract with the VA ratified another unpublicized deal that had been struck between the insurer and the government 10 years earlier -- one that was never put into writing, Bloomberg Markets magazine reports in its November issue. The verbal agreement in 1999 provoked concern among top insurance officials of the agency, the documents released in the FOIA request show.
The VA’s new contract disclosures were reported yesterday on the Wall Street Journal’s website.
To contact the reporters on this story: Jeff Plungis in Washington at jplungis@bloomberg.net; David Evans in Los Angeles at davidevans@bloomberg.net.
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