PGE's "Dead Peasant" Life Insurance Policies

On April 24, 2002, a Houston Chronicle article entitled "Enron utility's 'dead peasant' policies rankle," described Portland General Electric’s business practice of buying life insurance policies on rank-and-file employees and designating the company as the beneficiary. Employees stated that they didn't know the policies were taken out on them.

For those unfamiliar with these policies, the phrases "dead peasant" and "dead janitor" are the slang terms to describe them because the policies are taken out on low-ranking employees. The policies make current and former workers worth a great deal "dead" to their bosses. In PGE's case, the policies benefit, to this day, the utility’s top management.

The Houston Chronicle wrote:

"The Portland General fund has set aside nearly $80 million for two purposes:

• About three-quarters of the money goes for a long-term compensation plan for managers, directors and top officials.
  
  
• The rest helps pay for supplemental executive retirement payments.

This approach is used by Portland General to reward top executives with more than just their 401(k) and the traditional defined benefit pensions that are allowed by federal pension laws, which cap how much the company can contribute to the benefits."

PGE spokesman Kregg Arntson refused to reveal details of the compensation packages to the , Chronicle, saying they're "internal employee matters."

The article later says, "Scott Simms, another Portland General spokesman, said the money was put in a trust and cannot be moved to compensate employees who lost money in their 401(k) accounts. Besides, Simms said many senior executives also suffered big losses on Enron stock."

These policies provide six-figure tax-free death payoffs to companies. While employees are alive, the policies also provide tax breaks. Because several large companies buy the policies, it's been estimated that they've resulted in $6 billion a year in lost tax revenue to the U.S. Treasury. Insurance companies have marketed them as an "attractive, off-balance-sheet asset."

Ironically, these policies are illegal in Texas, where PGE's parent is physically located.

The IRS has sued several companies that bought company-owned life policies, challenging deductions for interest costs. In every case where companies sued the IRS to recover money they were forced to pay in back taxes, the courts stated that the insurance policies were a tax dodge.

Clackamas Public Power
www.cheappower.org