V.A. Agreed to Withholding of Benefits, Documents Say

[Frank Booth]

Source: Bloomberg

The Department of Veterans Affairs agreed in September 2009, without telling six million soldiers and their families, to allow Prudential Financial to withhold lump sum payments of life insurance benefits owed to survivors of service members, according to documents made public through a request under the Freedom of Information Act.

The amendment to Prudential’s contract is the first document to show that department officials sanctioned a practice that has prompted lawmakers and regulators to call for investigations. Since 1999, Prudential has used so-called retained-asset accounts that keep death benefits in its general corporate account, earning investment income for itself, instead of paying out a lump sum immediately.

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Under Prudential’s original 1965 contract with the government and a 2007 revised contract — both of which were released as part of the response to the Freedom of Information Act request — the insurer is required to send lump sum payouts to survivors who request them. The contract covers six million active service members, their families and veterans.

Instead, Prudential sends to survivors so-called checkbooks that are tied to what it calls its Alliance Account. The checkbooks are made up of drafts, or i.o.u.’s, and are not insured by the Federal Deposit Insurance Corporation. Prudential invests the survivors’ money in its general corporate account.

Read more: http://www.nytimes.com/2010/09/14/business/14insure.html?src=twr