Prudential Financial Inc. “should be honored” to administer death benefits for the U.S. military and shouldn’t profit when a soldier dies, American Legion Executive Director Peter Gaytan said today.
Families should benefit fully and insurers such as Prudential shouldn’t “take advantage” of interest earned from death-benefit accounts, Gaytan said today in an interview on Bloomberg Television.
“The death of a serviceman should not lead to a profit,” Gaytan said. “That interest should not go to anybody who’s administering the benefit, like Prudential.”
Insurers have been criticized by government officials since Bloomberg Markets reported in July that carriers profit by holding $28 billion owed to beneficiaries in so-called retained- asset accounts.
Prudential received about $4 million last year from the Department of Veterans Affairs to administer the death-benefit program, which covers about six million soldiers and their families. It held $662 million of survivors’ money in its general account as of June 30, according to the VA.
Prudential pays interest on the accounts and earns money by investing the funds. The accounts provide checkbook-like access to beneficiaries and aren’t federally insured. Newark, New Jersey-based Prudential has said the accounts allow beneficiaries to withdraw all their money whenever they choose.
The insurer currently pays 0.5 percent interest to survivors on that money. Prudential invests their money in its general account, which earned more than 4 percent in the first half of 2010.
In 1965, before Congress created the new insurance program, the American Legion tried to persuade lawmakers not to contract with an insurance company. John Corcoran, a Legion executive, testified against hiring of a private insurer at a congressional committee considering the plan.
“Indemnifying the lives of our servicemen and providing a degree of protection to their parents, widows and orphans is not a business transaction,” said Corcoran. “It is the responsibility of the government.”
Jimmie Foster, the Legion’s national commander, today said the group’s position hasn’t changed.
“The American Legion still believes that its 1965 position is still the right one today,” he said in a written statement.