Tuesday, December 7, 2010

The Life Insurance Gambit: Let's Do This Right.

In a clear a sign that the pensions funding quandary has passed the Godzilla Threshold, Council President Darlene Harris boldly forwarded a plan that has not exactly been attacked yet:

She said the plan would be similar to "dead peasant" insurance, a controversial practice in which an employer takes out a policy on the employee, often without saying so. If the employee dies, the employer receives a payout.

Under the plan Mrs. Harris is circulating, the city would work with a corporate partner.

That entity would provide an up-front payment, which would be allocated to the pension fund. The corporate partner and the pension fund would split future payouts from the life insurance policies. (P-G, Joe Smydo)

The framework was discussed a bit on the Comet in November. One issue with it is that the subjects of each policy would almost certainly in fact have to sign off on those policies, even under current law. The next problem is, since it has never been attempted on a massive scale and its widespread acceptance would likely negatively impact the insurance industry eventually and as a whole, state or federal lawmakers would probably act to make it illegal shortly after it begins spreading.

And of course, we only have 24 days to get something off the ground if we'd in fact like to retain control over our pension fund.

In light of all this, the Comet has a not-even-modest proposal to get this right:

  • In exchange for a proportionately much larger up-front payment, let the corporate partner (or partners) keep the whole future payouts.
  • Instead of including only persons vested in the pension fund, target everyone vested in the City of Pittsburgh: that is, every man, woman and child residing in the City and every expatriate in Steelers Nation.
  • In order to motivate full willing participation, offer each subject a $10,000 signing bonus.

Assuming that a $1 million life insurance policy can be sold on the market for about $400,000, the City of Pittsburgh would net $390,000 x 300,000 citizens = $117 billion. That is of course a rough estimate based on rough assumptions that some among our population would still not sign on / be unsuitable, offset roughly by many in our diaspora participating out of solidarity. In truth, we may need to motivate our prospective corporate partners to take on such a heavy and untried insurance aggregation project, so let's give them a quantity discount and call it a cool $100 billion up-front payday.

Although this cannot be organized by Jan 01 2011, a hundred billion would offset even the most bearish MMO projections under state takeover. There should even be enough left over to start paving the recommended 80 miles of streets per year -- in gold if we so desire.

In light of the fact that this would motivate a response from the wider insurance industry and their lobbyists, we would only have one shot to execute this -- and would need to do so with a certain amount of speed. Local political solidarity is a must, local opinion leaders would need to be sold on the idea in advance, street teams would need to be organized to garner the contracts ward-by-ward and block-by-block, and certain potentially skeptical lawmakers would need to be cut in on the ground floor. The active public campaign should probably be timed to coincide with August recess or something similar.

Owing to the need for operational security, this post will probably disappear within days. But if you'd like to see a $50 billion infusion into the city's capital budget and put a laser rifle turret on every block of Carson Street, forward this now to a friend who you know loves Pittsburgh. And the next time you see Councilwoman Harris, press your index finger to your nose and wink for me.


  1. Nice job - a lot more creative than gasping derision, which is all I can summon for this godawful cockamamie idea.