Wyden Questions Prudential CEO About Life Insurance Tax Shelters

September 21, 2022

Charles F. Lowrey
Chairman & Chief Executive Officer
Prudential Financial Inc.
751 Broad St.
Newark, NJ 50104

Dear Mr. Lowrey,

I write seeking information regarding the growing use of Private Placement Life Insurance (PPLI) policies as a tax shelter for the wealthiest Americans. I am concerned that these insurance vehicles are being used, without a genuine insurance purpose, to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes.

According to public reports, the bare minimum required to invest in a PPLI policy is $2 million.¹ However, experts indicate that it is much more common for investors to devote at least $5 million for the strategy to be worthwhile.² By definition, these policies are only available to the wealthiest 1 percent of Americans and offer a myriad of tax advantages not available to most working Americans.

One of the market leaders in the PPLI industry described PPLI as a “core element of effective long-term wealth structuring strategies for many wealthy individuals and families.”³ These policies are marketed by some in the industry as a means to invest in hedge funds, private equity funds and other financial products while avoiding income and estate taxes. According to marketing materials from the PPLI industry leader, a properly designed PPLI policy can be used to “minimize or eliminate estate taxes” and “defer or potentially eliminate income tax or any tax reporting associated with investment activities.”⁴ Some experts have also indicated PPLI would increase in importance if Congress were to eliminate the “stepped up basis” loophole used by the wealthiest households to transfer assets to their heirs tax-free.⁵ A PPLI policy can effectively replicate a basis step-up on unrealized gains through a tax-free insurance death benefit paid to beneficiaries.⁶

In addition to concerns that PPLI policies are promoted as a tax shelter, a recent investigation by the U.S. Department of Justice raises concerns about the involvement of PPLI policies in various offshore tax evasion schemes. Last April, Switzerland's largest insurance company, Swiss Life, pleaded guilty to using PPLI policies and related investment accounts as “insurance wrappers” to help thousands of U.S. taxpayers' conceal their ownership of assets offshore and evade paying U.S. taxes.⁷

Though the size of the PPLI market is difficult to determine, it appears that these policies and related investment accounts are now worth at least tens of billions of dollars and are proliferating rapidly among ultra-high net worth individuals. One major industry player's overall assets under administration grew from $55 billion in 2020 to over $67 billion today.⁸ It is unclear exactly how much of these assets under administration are PPLI policies and related investment accounts, though reports suggest that this company “dominates the market.”⁹ According to one estimate, Prudential has approximately $28 billion in PPLI assets under administration invested in insurance dedicated funds and separately managed accounts.¹⁰

As Chairman of the Senate Finance Committee, I am investigating the use of PPLI policies and other loopholes exploited by the wealthiest 1 percent of Americans to avoid paying their fair share in taxes. In order to better understand how Prudential Financial Inc. may be assisting millionaires and billionaires minimize or eliminate taxes on investment income, please answer the following questions no later than September 30, 2022:

Thank you for your attention to this important matter.

Sincerely,

Ron Wyden
United States Senator
Chairman, Committee on Finance