Wednesday, August 31, 2016

No. 177: Annuities, Pensions, and the Theft of Benefit Payments

The August 1980 issue of The Insurance Forum carried an article about unclaimed death benefits. However, the subject did not catch fire until July 28, 2010, when Bloomberg News carried an article by reporter David Evans. The article, which dealt with life insurance owned by members of the military, strongly criticized life insurance companies for using the Social Security Death Master File (DMF) to help them stop the theft of annuity benefit payments while failing to use the DMF to help them pay unclaimed death benefits. The New York Times, The Wall Street Journal, and The Washington Post immediately picked up the story, and I wrote about it in the October and November 2010 issues of the Forum. I have never seen a discussion of the magnitude of the theft of annuity benefit payments.

The Notification Problem
A life annuity is a series of payments, often monthly, made to an annuitant. In many instances, the payments are contingent on the survival of the annuitant. Thus the benefits payable under many annuities are supposed to stop when the annuitant dies. When I refer to annuitants, I also have in mind pensioners who receive benefit payments from private employer-sponsored pension plans, from federal, state, and local government pension plans, and from the Social Security System.

Annuity and pension benefit payments are invariably made by mail or by direct deposit into the annuitant's or pensioner's bank account. Thus the insurance company or pension plan depends on a survivor to provide notification of the death of the annuitant or pensioner so that the company or the pension plan can stop the benefit payments. However, a survivor may pretend the annuitant or pensioner is still alive and thereby steal the continuing benefit payments. When the payment comes by check, a survivor may forge the deceased person's endorsement on the check and thereby steal the payment. When the payment goes into a joint bank account owned by the annuitant (or pensioner) and a survivor, it may be even easier for the survivor to steal the continuing payments.

A Recent Example
On August 15, 2016, in a joint press release, New York State Attorney General Eric Schneiderman and Comptroller Thomas DiNapoli announced an indictment charging John H. Eydeler III, a 66-year-old Arizona resident, with grand larceny in the second degree, a class C felony. He allegedly stole over $100,000 in benefits from a New York State pension plan. The benefits were intended for Eydeler's mother, a retired nurse, who died in October 1998. The indictment was filed in a state court in Albany. Here is an excerpt from the press release:
According to investigators, Eydeler concealed his mother's death in 1998 from the New York State and Local Employees Retirement System. As a result, between October 1998 and January 2010, over $100,000 in pension benefits were deposited into a bank account in the name of Eydeler's deceased mother. Eydeler then allegedly diverted these monies to himself by claiming to have power of attorney for his mother and writing checks to himself every month for over a decade.
At Eydeler's arraignment, he pleaded not guilty. If convicted, he would face "up to five to fifteen years" in state prison.

General Observations
Over the years I have seen examples of legal actions against persons who allegedly stole annuity or pension benefits. However, I have not seen any discussions of the magnitude of the problem. I think there are large numbers of such incidents, but many thefts may not be large enough to warrant criminal charges.

I am not mentioning this subject to defend life insurance companies who use the DMF to try to minimize annuity theft while not using the DMF to try to pay unclaimed death benefits. Rather, I am mentioning the subject to point out that the companies may have had—and may still have—a major problem in dealing with the theft of annuity benefit payments.

Available Material
I am offering a complimentary 12-page PDF consisting of the 1-page press release issued by the New York State attorney general and the comptroller, the 2-page article in the August 1980 issue of the Forum, the 4-page article in the October 2010 issue the Forum, and the 5-page article in the November 2010 issue of the Forum. Email and ask for the September 2016 package relating to the theft of annuity benefit payments.