Veterans Affairs, Prudential made secret deal over benefits to family of fallen soldiers

Secret's out.

For more than a decade, Prudential Financial Inc. has had a confidential arrangement with the U.S. Department of Veterans Affairs to withhold lump-sum payments of life-insurance benefits to the family of dead soldiers, so that Prudential could invest that money and keep whatever cash it made it itself, Bloomberg News reported.

The VA failed to inform soldiers and their families of the agreement. Prudential, the second-largest U.S. life insurer is the only provider of life insurance for 6 million U.S. military personnel.

The arrangement began in 1999 and was kept confidential until it was put into writing in 2009.

"Every veteran I've spoken with is appalled at the brazen war profiteering by Prudential," said Paul Sullivan, a 1991 Gulf War vet and executive director of Veterans for Common Sense, a nonprofit advocacy group. "Now vets are upset at the VA's inability to stop Prudential's bad behavior."

Survivors who requested lump-sum payouts were sent checkbooks, essentially IOUs that weren't federally insured, instead of actual checks.

Prudential held $662 million of survivors' money as of June 30. The general account earned 4.2% in interest in 2009, mostly from bond investments.

Bob DeFillippo, a Prudential spokesman, told Bloomberg News that the company was in compliance with its contract with the Department of Veterans Affairs.

The VA has since launched an investigation of its life insurance program at the end of July.

Defense Secretary Robert Gates said he wasn't aware of the arrangement until the probe began.

"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."

In a statement, the VA announced that it will give beneficiaries the option between a lump sum or a retained asset account, allowing the money to accrue interest.

"The department will provide better clarity of payment options by using new documents that ask the beneficiary to choose one payment option, including a lump sum check, or a lump sum Alliance Account (retained asset check)," said VA in a statement."Beneficiaries [have] the option to immediately write a check for the entire payment or any lesser amount."

Paul Sullivan said the department has already dropped the ball.

"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 said.