It’s a fair and important point to make that some beneficiaries (and regulators!) didn’t understand that the accounts are not covered by the FDIC. But I think that, since the industry argues that the accounts are protected by state guaranty funds, that point of view should be noted in any story that raises the FDIC issue. DeFillippo said he made that point to Evans in talking to him for the first, July 28, story, but it wasn’t reflected there or in some subsequent stories that raised the issue of the lack of FDIC coverage.
Bloomberg presented the fact that the accounts are protected by state guaranty funds only a day later, July 29, in two related stories about regulators and New York’s attorney general launching probes into the accounts. (UPDATE AND CORRECTION: One of these stories ran on July 28, the same day as the first installment in the series, as well as on July 29.)
In addition, on August 13, Bloomberg published a story headlined “Lawmakers Question Value of Insurer Safety Net to Beneficiaries.” It quotes industry officials at some length about the protection that the state guaranty funds provide, although it also raises questions by others about how much protection they really offer. It’s a balanced account.
A subsequent story on August 24, by David Glovin, also raised questions about whether the state guaranty funds provide adequate financial protection.
But even after those stories ran, Bloomberg went back to raising the issue of the lack of FDIC coverage without mentioning the industry position that beneficiaries are protected by the state guaranty funds.
In the September 14 story, although the lack of FDIC coverage comes up again—among other reasons because FDIC Chairman Sheila Bair had raised the issue—the industry point of view that the accounts are protected isn’t reflected, and it should have been.
A deal’s secrecy
Back to DeFillippo:
As for the allegation that there was some secret agreement between Prudential and the VA, the use of the Alliance Account was, as Evans reports, done with the approval of the VA. From the outset, the use of Alliance Account as the lump-sum option was disclosed to beneficiaries in the letter they receive prior to selecting a payment option.I think Bloomberg accurately reported on the deal. Yes, it was done with the approval of the VA, as any deal with the VA would have to have been. But what Bloomberg reported on September 14 was that documents obtained through a Freedom of Information Act request disclosed an amendment to Prudential’s contract with the VA that had been put through a year ago, on September 1, 2009, which in turn:
…ratified another unpublicized deal that had been struck between the insurer and the government 10 years earlier—one that was never put in writing….This verbal agreement in 1999 provoked concern among top insurance officials of the agency, the documents released in the FOIA request show…
And, according to Bloomberg, the original 1965 contract between Prudential and the VA:
“….says any alternations must be made in writing.”
When I talked to Bloomberg editor Neumann, who subsequently was given permission to talk to me, he said that the VA was asked whether it or Prudential had publicly announced the change. “We gave them a whole range of questions. ‘Did you say it in any form? Did you do a press release or inform Congress?’” The gist of what VA attorney Dennis Foley said was “this is how these types of contract changes are made,” said Neumann.