In my post No. 43 published April 21, 2014, I discussed a "free" life insurance plan promoters are offering to Florida's Pasco County School District. My comments were based largely on an April 8 Tampa Bay Times article. On April 24, pursuant to Florida's public records law, I asked the district for all documents the promoters submitted about the plan. On April 30, I received more than 100 pages of documents relating to several school board meetings. On May 6, The Wall Street Journal carried an article by Leslie Scism entitled "Free Life-Insurance Offer Is Drawing Scrutiny." This follow-up posting is based largely on the documents I received.
Meeting on February 15, 2013
On February 15, 2013, Pollock Financial Group and Consolidated Insurance Group (CIG) made a presentation to the school board. The plan was entitled "TRiPeb's Trust-Owned Legacy Life Insurance Program." "TRiPeb" stands for "Trust-Owned Insurance for Post Employment Benefits." The presentation said the plan "adheres to all state insurance guidelines and regulations," and described the plan in these words:
A methodology, which is based on insurable interest between an employer and an employee or retiree, and utilizes trust-owned life insurance and premium financing to provide supplemental funding to aid local governments with their underfunded pension and health care liabilities.
The presentation included nine items. (1) "The Challenge Faced by the Nation and the District School Board of Pasco County" with data showing the financial problems of state and local governments in general and Pasco County in particular. (2) "How Have Corporations Addressed This Challenge?" showing logos of 27 large firms that use employer-owned or bank-owned life insurance. (3) "Key Features" of the plan, including (a) creation of a "funding trust" by the school board, (b) $250,000 of life insurance on each employee or retiree, (c) "premium financed" life insurance that requires no "out-of-pocket costs" for the school board or its employees, (d) borrowing by the trust to pay for the cost of insurance but with no liability for the school board or its employees, (e) half the $250,000 death benefit paid to the trust to cover financing costs, (f) $50,000 of the remaining death benefit paid to the employee's beneficiary, and (g) $75,000 paid to the school board toward underfunded liabilities and assistance with current and future benefit costs. (4) A projection, based on 5,000 covered employees, showing that the employees' beneficiaries will receive $250 million and the district will receive $375 million over the 55-year duration of the plan. (5) A chart of the plan's "Mechanics" showing the purchase of a $250,000 life insurance policy and a $125,000 annuity. (6) "The 5 Step Implementation Process." (7) "Members of the TRiPeb Team" consisting of Edward Netherland for overall strategy and firm execution, Mark G. Pollock and William Olive of Pollock Financial for sales and case management, Hutch Hutchison of CIG for firm oversight, structuring, and administration, Derek Siewert of ARX Insurance Advisors for carrier relations, William Kelly of VEBA Employee Benefits Advisors for enrollment, Wilmington Trust Company as trustee, and Thomas Weinberger of Stroock Stroock & Lavan for legal matters. (8) Descriptions of those firms and biographies of those individuals. (9) A one-page "Disclaimer."
Meeting on June 4, 2013
On June 4, 2013, Pollock Financial made a presentation with the same title used at the earlier meeting. There was a brief description of a board workshop that preceded the meeting. Guest speakers were Olive and Pollock. They presented information on the plan and described it as "an insurance product that has no cost or liability to the school board but has the potential to help fund shortfalls." The presentation at the meeting included documents similar to those presented at the earlier meeting, but there were four important differences. (1) The "TRiPeb Team" did not include Netherland. (2) There was a one-page discussion of "Insurable Interest." (3) The projection was based on $250,000 polices on each of 10,732 employees. (4) There was a four-page unsigned opinion letter dated June 3, 2013 from the Stroock firm addressed to the school board and Pollock Financial on the subject of "Life Insurance and Annuity Program." The letter described the plan and included a legal analysis of insurable interest. Here are two excerpts:
In connection with the program, the district will form a trust to acquire life insurance policies and annuities. The named insureds under the life insurance policies and the measuring lives for the related annuities would be the employees of the district. The trust will obtain financing from a third party to acquire the annuities and the income from the annuities will be used, in part, to pay the premiums due on the life insurance policies....
It is our opinion, based upon and subject to the factual descriptions, assumptions, qualifications, limitations and analysis in this opinion letter, if the question were properly presented and well argued, a court applying Florida law should find, under a proper interpretation of insurance law in Florida, that the trust has an insurable interest in the lives of the employees of the district.
The above opinion about insurable interest prompted me to look at Florida's insurable interest law (section 627.404). My impression is that promoters of exotic life insurance schemes have lobbied successfully to expand the definition of an acceptable insurable interest.
Meeting on September 17, 2013
On September 17, 2013, Pollock Financial made a presentation entitled "Legacy Trust Program: An Employee Benefits Funding Strategy." It contained documents similar to those presented at the two earlier meetings, but there were two important differences. (1) The projection was based on $350,000 life insurance policies on each of 8,962 employees. (2) The "Legacy Trust Program Team Members" did not include CIG or Wilmington Trust, but included Bermuda-based State House Trust as trustee, Alabama-based Regions Financial Corporation as trustee of another trust, and Germany-based Munich Re as a reinsurer.
Meeting on March 12, 2014
On March 12, 2014, Pollock Financial made a presentation entitled "Legacy Benefit Trust Program." It differed from the presentations at the three earlier meetings. It included "The Concept of Net Amount at Risk (NAAR)," "Three Funding Solutions," "Methodology for NAAR using third party funding," "Summary of How the Program Works," "Private Placement Variable Universal Life Insurance Overview" with a reference to coverage from "a highly rated insurance company," "Structural Overview," "Inception," "Distributions," "Illustrative Example—$100 Million Contribution" with examples of death benefit patterns, "Participants and Benefits," and a one-page "Disclosure." There was no mention of a "Team."
Meeting on April 15, 2014
On April 15, 2014, there was a board workshop followed by a board meeting. Four new items were presented. (1) A one-page memorandum to school board members from the school superintendent on the subject of "Legacy Trust Program." (2) A one-page "Statement of Intent" from Pollock Financial. (3) A one-page "Mitigation of Reputational Risk" describing what would happen if the funding of the plan should collapse or the insurance company should become insolvent. (4) A two-page sample letter to employees of the Pinellas County (Florida) Sheriff's Office; the letter said the office recently approved the TRiPeb plan, but it is my understanding that the office did not implement the plan.
The Florida Investigation
On April 21, 2014, Janice S. Davis, manager of market investigations in the Florida Office of Insurance Regulation (FLOIR), sent a two-page "official inquiry" to the district. She said the FLOIR is "seeking clarity" concerning the plan. She included a ten-point list of materials and asked the district to provide them by May 5. On May 1, the district sent the FLOIR a CD, which I have not yet reviewed.
The documents I have seen contain many generalized comments but do not contain information of the type the school board needs to decide whether to implement the plan. For example, here are some of the matters on which the documents lack information:
- Identity of the "highly rated" primary insurer that will issue privately placed variable universal life (PPVUL).
- Identity of the securities licensee associated with the PPVUL. The Financial Industry Regulatory Authority's BrokerCheck lists Mark Gordon Pollock as not licensed.
- Identity of the premium finance lenders.
- Assumed premiums for the PPVUL.
- Assumed mortality rates for the PPVUL.
- Assumed interest rates for the PPVUL.
- Assumed expense charges for the PPVUL.
- Assumed premiums for the annuities.
- Assumed payments from the annuities.
- Assumed interest rates, origination fees, other costs, and loan terms for the funds borrowed from the premium finance lenders to pay the premiums.
- Legal expenses for drafting the trust agreements and the other legal documents.
- Sales commissions for the PPVUL.
- Sales commissions for the annuities.
- Trustee fees.
- Administrative expenses, including the cost of tracking employees after they retire or otherwise end their employment by the district.
From the documents I have seen, it is impossible for the school board to know whether the plan can deliver the proposed benefits, or whether it is "too good to be true." For reasons explained in my post No. 43, I believe that the plan will collapse long before the end of its proposed 55-year duration, and that litigation over the plan is likely to occur. Therefore, I repeat the statement in my previous post: "My unsolicited advice to the district is to reject the plan."
I am offering a 14-page complimentary PDF consisting of the one-page "Disclaimer," the one-page discussion of "Insurable Interest," the four-page Stroock opinion letter, the one-page "Disclosure," the one-page memorandum to the school board from the school superintendent, the one-page "Statement of Intent" from Pollock Financial, the one-page "Mitigation of Reputational Risk," the two-page sample letter to employees of the Pinellas County Sheriff's Office, and the two-page letter to the district from the FLOIR. Send an e-mail to email@example.com and ask for the Pasco package.