Veterans Agency Made Secret Deal With Prudential Over Benefits

[Winehole23]

Veterans Agency Made Secret Deal With Prudential Over Benefits


By David Evans - Sep 14, 2010 7:54 AM CT



The U.S. Department of Veterans Affairs failed to inform 6 million soldiers and their families of an agreement enabling Prudential Financial Inc. to withhold lump-sum payments of life insurance benefits for survivors of fallen service members, according to records made public through a Freedom of Information request.



The amendment to Prudential’s contract is the first do ent to show how VA officials sanctioned a payment practice that has spurred investigations by lawmakers and regulators. Since 1999, Prudential has used so-called retained-asset accounts, which allow the company to 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. This verbal agreement in 1999 provoked concern among top insurance officials of the agency, the do ents released in the FOIA request show.



For a decade, until the contract was formally changed, Prudential wasn’t fulfilling its obligations to survivors of fallen service members, says Brendan Bridgeland, an insurance lawyer who runs the non-profit Center for Insurance Research in Cambridge, Massachusetts.


‘Violated Terms’



“It’s very clear they violated the original terms of the contract,” says Bridgeland, who is retained by the National Association of Insurance Commissioners to represent consumers.



“Every veteran I’ve spoken with is appalled at the brazen war profiteering by Prudential,” says Paul Sullivan, who served in the 1991 Gulf War as an Army cavalry scout and is now executive director of Veterans for Common Sense, a nonprofit advocacy group based in Washington. “Now vets are upset at the VA’s inability to stop Prudential’s bad behavior.”



That the VA allowed Prudential to issue retained-asset accounts for 10 years while the contract required lump-sum payouts is “more evidence that the VA was asleep at the wheel for a decade,” says Sullivan, who was a project manager and analyst at the VA from 2000 to 2006.



“When grieving families check the box that they want a lump sum, they should get it. We remain disappointed and irate at the VA’s failure to provide advocacy for veterans,” he says.



State and U.S. Probes



Since July 28, when Bloomberg Markets first reported that Prudential sent checkbooks instead of checks to survivors requesting lump sum payouts, state and federal officials have demanded the retained-asset system be investigated and reformed. The VA itself launched a probe of its life insurance program the day the first story was published.



The next day, New York Attorney General Andrew Cuomo launched what he called a “major fraud investigation” of Prudential and other life insurers over their use of retained- asset accounts. Since then, Cuomo’s office has issued subpoenas to Prudential and at least 12 more insurance companies.


The insurance departments in Georgia and New York have also opened probes. The U.S. House Oversight and Reform Committee plans to hold hearings into Prudential’s use of retained-asset accounts to pay money owed to fallen soldiers’ survivors.



‘News to Me’



U.S. Secretary of Defense Robert Gates -- who was in office when the 2009 agreement was signed -- said when the VA started its probe that he had been unaware that survivors were being sent retained-asset accounts.



“Until today I actually believed that the families of our fallen heroes got a check for the full amount of their benefits,” Gates said at the time. “This came as news to me.”



As a result of the VA probe, the agency will soon announce it will change its insurance program, allowing survivors to request and receive lump check checks, VA spokeswoman Katie Roberts said today.



Under Prudential’s original 1965 contract with the VA and a 2007 revised contract -- both of which were released as part of the FOIA response -- the insurer is required to send lump-sum payouts to survivors requesting them. The contract covers 6 million active service members, their families and veterans.



The checkbooks Prudential sends to survivors are tied to what the insurer calls its Alliance Account. The checkbooks are made up of drafts, or IOUs, and aren’t insured by the Federal Deposit Insurance Corp. Prudential invests the survivors’ money in its general corporate account, where it can earn the insurer as much as eight times as much as it currently pays in interest to beneficiaries.



Bond Income



Prudential held $662 million of survivors’ money in its corporate general account as of June 30, according to information provided by the VA.



Prudential’s general account earned 4.2 percent in 2009, mostly from bond investments, according to regulatory filings. The company has paid survivors holding Alliance Accounts 0.5 percent in 2010.



Families that were supposed to receive lump-sum payments under the terms of the contract before it was amended in 2009 may be able to successfully sue Prudential for lost interest, insurance lawyer Bridgeland says.



“Survivors would have a very strong claim for interest earned by Prudential on their money,” he says.



Prudential spokesman Bob DeFillippo says his company is following the terms of its agreement with the VA.



“Prudential is in compliance with its contract with the Department of Veterans’ Affairs,” he says.



DeFillippo declined to comment on whether Prudential was in compliance with its contract between 1999 and September 2009 or to answer any other questions. Prudential chairman and Chief Executive Officer John Strangfeld declined to comment for this story.
Useful Service



In July, DeFillippo said Prudential’s retained-asset account was a useful service for bereaved relatives of soldiers. “For some families, the account is the difference between earning interest on a large amount of money and letting it sit idle,” he said. Survivors can withdraw some or all of their money at any time, he said.



Veterans Affairs Chief of Staff John Gingrich says the agency approved use of the Alliance Account because it wanted to help survivors.



“We needed to give an option to individuals that allowed them more flexibility and time to react to the tragic family situation,” Gingrich says.
Verbal Agreement



VA spokeswoman Roberts declined to say when Veterans Affairs Secretary Eric Shinseki, who was appointed by President Barack Obama in January 2009, learned of the existence of the 1999 verbal agreement and the 2009 amendment. She also declined to make Shinseki available for comment.



The VA official who verbally agreed in 1999 to allow Prudential to change the terms of the 1965 contract and begin offering retained-asset accounts was Thomas Lastowka, the VA’s director for insurance, according to Dennis Foley, a VA attorney. Prudential began sending Alliance Account kits to soldiers’ beneficiaries in June 1999.



Foley says the VA and Prudential would have been better off if they had put their 1999 agreement in writing.



“Could that have been done better?” Foley asks. “Probably. Best practice would have been to legally memorialize it at the time.”



Foley says the 1999 changes to the 1965 contract were valid, even if they weren’t in writing, because they were made by mutual agreement by people empowered to make such decisions.



“It was changed by somebody who was authorized to change it,” he says.



Contract Terms



The language of both the 1965 contract and the 2009 amendment make clear that Newark, New Jersey-based Prudential was required to adhere to the original terms until 2009, regardless of any handshake agreements in 1999, insurance lawyer Bridgeland says.



The 1965 contract says any alterations must be made in writing.



“No change in the Group Policy shall be valid unless evidenced by an amendment thereto,” it says. “No Agent is authorized to alter or amend the Group Policy.”



The VA and Prudential signed a revised contract in 2007, saying it was “amended in its entirety.” That contract, with the exact same words as the 1965 agreement, required that Prudential pay survivors with lump sums.
The 2007 revision included the same procedures in the 1965 agreement requiring any changes be made in writing. It contained no mention of the retained-asset system, or of the verbal agreement struck in 1999.
2009 Amendment



It wasn’t until Sept. 24, 2009, that the changes agreed to by VA official Lastowka and Prudential in 1999 were put into writing. The 2009 amendment allowing Prudential to hold onto death benefit payouts was made retroactive to Sept. 1, 2009, not back to 1999.



By putting in writing a change that was verbally adopted 10 years earlier, the VA is effectively trying to backdate the amendment, says Jeffrey Stempel, an insurance law professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, who wrote ‘Stempel on Insurance Contracts’ (Aspen Publishers, 2009).



“They’re trying to reinvent history,” Stempel says. “You really can’t do that. This is a blatant giveaway by the VA with nothing for the agency or the people in uniform.”



Nine of every 10 survivors ask Prudential for lump-sum payments, the VA says. Prudential sends those families “checkbooks” instead of checks.



‘Disasters Do Happen’



Do ents released in the FOIA request show some signs of concern within the VA after Prudential proposed the retained- asset accounts in 1998. Lastowka, the official who allowed Prudential to introduce the Alliance Accounts, said that the insurer’s “checkbook” system wasn’t protected by the FDIC.



“Disasters do happen,” wrote Lastowka, in an e-mail dated June 9, 1999, to Stephen Wurtz, the agency’s deputy assistant director for insurance.



Lastowka said in his e-mail that the lack of FDIC coverage could backfire on survivors.



“Who is responsible if Alliance goes belly up?” Lastowka asked. “I think we have to also be prepared to defend the use of the Alliance Account.”
Lastowka also asked whether Prudential had adequately disclosed to survivors that the Alliance Accounts weren’t covered by FDIC insurance.


“Did Pru alert us to the non-FDIC fact?” he wrote to Wurtz. “Or was it in small print as the notice to beneficiaries?”



Do ents turned over by the VA didn’t include a response from Wurtz.

‘Aware of Issues’



Lastowka says his e-mail shows the decision to allow Alliance Accounts was carefully considered.



“This e-mail demonstrates simply that the VA’s Insurance program was aware of issues that might be raised as we implemented the payment method and that we should be prepared to respond to inquiries,” Lastowka says. “We were confident that we were making a decision which would benefit survivors.”



The FOIA do ents show that on June 10, 1998, Prudential gave a presentation to the VA. It included 10 pages of key points, saying the Alliance Accounts would benefit survivors because they would provide safety, flexibility in how and when to use their money, compe ive interest rates and customer service.



In fine print, at the bottom of one of the pages, was this caveat: “Funds in the Alliance Account are direct obligations of The Prudential Insurance Company of America and are not insured by the Federal Deposit Insurance Corporation.”



Twelve years later, the issue of the lack of FDIC protection in retained-asset accounts flared anew.



FDIC Chairman Sheila Bair said in August that consumers could incorrectly conclude that retained-asset accounts were insured by the FDIC.



“The insurance company must take care to avoid implying in any way that these accounts are in fact FDIC-insured,” she wrote in an Aug. 5 letter to state insurance regulators.



Some families of veterans have taken their complaints to court. Five survivors filed a federal fraud lawsuit in Boston on Aug. 30 against Prudential claiming the insurer has earned as much as $500 million in profits by improperly keeping beneficiaries’ money instead of paying it out in a lump sum.



The suit, Lucey vs. Prudential Insurance Co. of America, says the insurer fraudulently claims to beneficiaries that the Alliance Account is a lump sum.
‘This Ruse’



“Initiation of this ruse does not cons ute payment of anything to anyone,” the suit says. “The Alliance Account is merely a bookkeeping device used by Prudential to hold on to beneficiaries’ money.”


Prudential hasn’t yet filed a response in court. Spokesman DeFillippo says he can’t comment on the case.



“It is important to note that several federal judges have rejected claims against accounts like our Alliance Account, concluding that beneficiaries are in virtually the same position they would be in had the insurer sent them a check,” DeFillippo says. He cited the dismissal of a case against MetLife Inc. on Sept. 10.



Insurance contract professor Stempel says that regardless of the outcome of that lawsuit, it’s clear that Prudential and the VA wrongly manipulated a federal contract at the expense of military members and their relatives. “At a minimum, survivors ought to be made whole with their missed interest,” he says. “The VA really seems to have had the best interests of the insurance company at heart, instead of those of the soldiers and their families.

[TeyshaBlue]

I can see the case for added flexibility of the dispersed account, but without FDIC protection? That should've been a deal breaker right there.....well, that and the verbal amendment which was not codified until 2009. If the families were offered the choice of a lump sum payment, or an interest bearing dispersed account protected by the FDIC, I imagine a fair amount would've chosed the dispersed account route.
Lastowka completely boned this, on virtually every level. Amazing, really.

Prudential should have it's feet held to the fire...they knew damn well this was in violation of the original contract...especially considering it was a "verbal" agreement. The families have a good case to recover the interest earned. I wish them luck.

[Wild Cobra]

It's just another Obama: "I will those who are patriots."

[boutons_deux]

This mess pre-dated even veteran-hating Repug administration.

It's Just Another Corporate Vampire Sucking Blood From Citizens.

[TeyshaBlue]

It's just another Obama: "I will those who are patriots."

Did you even read the article?

[Spurminator]

It's just another Obama: "I will those who are patriots."

I didn't think it was possible to pack so much dumb into so few words.

[Wild Cobra]

Did you even read the article?

What are you saying? The original contract in 1965 was attempted to be modified by the Clinton administration in '99, but wasn't in writing. the changes weren't in writing till 2009. According to the 1965 contract, changes were only valid if they were in writing. The 2007 written revisions were "lump sum" as well.

Both demonrat presidents.

What are you saying I missed?

[TeyshaBlue]

What are you saying? The original contract in 1965 was attempted to be modified by the Clinton administration in '99, but wasn't in writing. the changes weren't in writing till 2009.

Both demonrat presidents.

What are you saying I missed?

Nice goalpost move.

I'm saying this has about zip to do with Obama.

It has about zip to do with Clinton as well. Good grief.

[Wild Cobra]

Nice goalpost move.

I'm saying this has about zip to do with Obama.

It has about zip to do with Clinton as well. Good grief.

Who was authorized to make the changes and who is responsible for his people's actions?

As for Clinton, just showing how demonrats think of the military.

[TeyshaBlue]

Who was authorized to make the changes and who is responsible for his people's actions?

The Director of the VA on both points.

[clambake]

amanda says shut up, dumbass.

[Wild Cobra]

The Director of the VA on both points.

Yes, and Shinseki is a cabinet level appointee who the senate had to approve. If he isn't terminated over this, we know his actions are approved.

[George Gervin's Afro]

Yes, and Gould is a cabinet level appointee who the senate had to approve. If he isn't terminated over this, we know his actions are approved.

you are an idiot

[Wild Cobra]

you are an idiot

If you say so.

I immediately changed that name, accidentally grabbing the wrong one. You quoted me before I changed it.

Please tell this idiot why it is so?

[TeyshaBlue]

Yes, and Shinseki is a cabinet level appointee who the senate had to approve. If he isn't terminated over this, we know his actions are approved.

Actually, Thomas Lastowka holds considerably more responsibility for this but certainly Shinseki has some culpablity for this as well.
As for ascribing causation to correlation, ie if he's not fired everything he did was approved, well, you've got alot of work to do there, WC.

[Winehole23]

On the contrary. Now that correlation has established causation in WC's mind, his work is over.

[Wild Cobra]

Actually, Thomas Lastowka holds considerably more responsibility for this but certainly Shinseki has some culpablity for this as well.

How do you hold a regional director responsible for national changes? I'd like to see your reasoning.

As for ascribing causation to correlation, ie if he's not fired everything he did was approved, well, you've got alot of work to do there, WC.

Forced resignation has always been the common practice over such matters unless the president agrees to the actions.

[TeyshaBlue]

How do you hold a regional director responsible for national changes? I'd like to see your reasoning.

Dude, at least pretend to use rational arguments. Lastowka was far from a regional director.

Thomas Lastowka, the VA’s director for insurance......

The regional center he worked at just happens to be the National Headquarters for VA Insurance. Keep tilting away, Don Quixote.

Forced resignation has always been the common practice over such matters unless the president agrees to the actions.

Really? Such matters? Find me a matter such as this and I'll consider this asinie point.

[Wild Cobra]

Dude, at least pretend to use rational arguments. Lastowka was far from a regional director.
The regional center he worked at just happens to be the National Headquarters for VA Insurance. Keep tilting away, Don Quixote.

How about a link showing he has such powers.

[TeyshaBlue]

How about a link showing he has such powers.

You want me to provide a link to prove he did what he did? He's the Director of the Veterans Administration Insurance Division. He entered into the contract. Ostensibly, Prudential is not going to negotiate a national policy with a regional director.

It's ok, WC. You're quite wrong. Embrace it.

[TeyshaBlue]

And since you won't go look for yourself, because you would then have to admit you are incorrect, here's a little linkage to help you out.

http://www4.va.gov/OCA/testimony/hvac/030925TL.asp

A relevant extract: All Insurance operations, headquarters functions, and Information Technology ( IT) and programming support staff are co-located at the Philadelphia Regional Office and Insurance Center. This integration of policy and operations provides for short lines of communication from the frontline public contact employees through the operating officials and program managers. This in turn results in focused effort, teamwork, and appreciation for veteran customers, and provides one of the highest levels of customer service and satisfaction in government.

There. Jesus.

[Wild Cobra]

You want me to provide a link to prove he did what he did? He's the Director of the Veterans Administration Insurance Division. He entered into the contract. Ostensibly, Prudential is not going to negotiate a national policy with a regional director.

It's ok, WC. You're quite wrong. Embrace it.

In 1999, a contract he had no power to legally make, since it wasn't in writing.

Right? Who signed the Sept 24 2009 deal?

[Wild Cobra]

And since you won't go look for yourself, because you would then have to admit you are incorrect, here's a little linkage to help you out.

http://www4.va.gov/OCA/testimony/hvac/030925TL.asp

A relevant extract: All Insurance operations, headquarters functions, and Information Technology ( IT) and programming support staff are co-located at the Philadelphia Regional Office and Insurance Center. This integration of policy and operations provides for short lines of communication from the frontline public contact employees through the operating officials and program managers. This in turn results in focused effort, teamwork, and appreciation for veteran customers, and provides one of the highest levels of customer service and satisfaction in government.

There. Jesus.

2003 doesn't count for 2009 contracts. It still doesn't say he is more than a regional director. I want to see where he has national power.

So what. The job is in the same complex he works out of.

What matters is who signed the 2009 deal.

[TeyshaBlue]

2003 doesn't count for 2009 contracts. It still doesn't say he is more than a regional director. I want to see where he has national power.

So what. The job is in the same complex he works out of.

What matters is who signed the 2009 deal.

Stop wiggling around and obfuscating. You asked :

How do you hold a regional director responsible for national changes? I'd like to see your reasoning.

I showed you exactly that he was not a regional director. Now you want to concentrate on the 2009 deal? .

The original sin lies with Lastowka. He's the one who negotiated the crappy deal to begin with. He's not a regional director. Get over it.

[Wild Cobra]

I showed you exactly that he was not a regional director. Now you want to concentrate on the 2009 deal? .

The original sin lies with Lastowka. He's the one who negotiated the crappy deal to begin with. He's not a regional director. Get over it.

I haven't seen who was responsible for signing the 2009 contract, and that's what matters. In the end, I'm sure the secretary of VA Affairs had to be involved. can you show me wrong? Besides, in that 2003 testimony, Lastowka questions the problems of the proposed deal. If he had the power, he never made a written contract over it in 99. Maybe because he had no such power to change it?

Back to my first post of substance, to show my train of thought:

What are you saying? The original contract in 1965 was attempted to be modified by the Clinton administration in '99, but wasn't in writing. The changes weren't in writing till 2009. According to the 1965 contract, changes were only valid if they were in writing. The 2007 written revisions were "lump sum" as well.

Both demonrat presidents.

What are you saying I missed?