High-earning Citigroup Inc. employees will soon start paying for life insurance as the banking giant cuts costs amid staggering losses.
Starting August, Citi employees who earn at least $200,000 will no longer be eligible for the basic life insurance that the bank provided for all employees. Instead, affected employees can enroll in a separate life insurance offered through Citi.
The move is part of cost-saving measures by Citi, which is cutting 9,000 more jobs during the second quarter on top of the 4,200 job cuts that the bank made in the previous quarter. Citi, which is expected to incur more losses, took $14 billion in write-downs and other losses during the first quarter.
Affected individuals may be paying a minimal amount for life insurance — around $300 per year for $200,000 subsidized coverage, but the firm can shave off significant expenses by allowing high-earners to pay given the insurance coverage that it provides to roughly 330,000 employees world-wide.
Mike Hanretta, a Citi spokesman, confirmed the company's new insurance policy to reduce overall company expenses. "This decision enables Citi to continue the company-paid benefit for employees earning under $200,000 per year, consistent with Citi's philosophy of providing benefits that are on par or exceed industry standards," Henrietta said.
The number of Citi's employees who earn more than $200,000 is unclear, but in the Smith Barney retail brokerage unit alone, where average revenue per broker is $858,000, affected employees could include those who generate around $500,000 in commissions and fees annually.
"Life insurance is the least important for older employees who are more concerned about retirement and disability, but for younger employees who have children, this is important," said a veteran Smith Barney employee.
Wall Street firms normally provide basic life insurance capped to a certain level. Merrill Lynch & Co., for instance, offers a plan equal to an employee's compensation of up to $500,000. Those who wish to get more coverage can enroll in a supplemental insurance policy.
In the case of Citi, the firm can cover basic insurance (typically a one-time coverage) for those who earn less than $200,000. Above $200,000 earners can join or increase their group universal life insurance, which is a separate life insurance offered through Citi as a supplement to the basic coverage. They can also enroll into an individual policy of their own.
Premium Rates for group universal life insurance, which is based on certain factors such as age and medical condition, will be reduced by will 12% starting August. Proof of insurability will not be required for early converters of up to $200,000 coverage.