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Prudential Demutualization

January 3, 2012, Update

We would like to thank all current and former employees for their patience during this process.

The University mailed checks distributing Prudential demutualization funds in September and October to qualified plan participants (including employees, retirees and former employees, as well as the personal representatives of the estates of deceased employees). As detailed in the University’s August 2011 letter to qualified plan participants, the IRS ruled that the Prudential distribution must be treated as wages for services previously rendered.

So please be reminded that individuals and/or estates receiving these funds will receive an IRS Form W-2 and/or an IRS Form 1099-MISC from the University for the amount of Prudential demutualization funds that they received.

The University can provide no guidance on tax issues and, as previously noted in our correspondence, would encourage recipients of the Prudential demutualization funds to share the information with their tax and financial advisors. The University will mail W-2s and 1099s by the end of January 2012.

Again, we thank you for your patience throughout this process.


Background with Questions and Answers

Prudential, the insurance company for the USC group life insurance plan, changed from being a mutual company owned by policyholders to a stock company owned by stockholders — a process called demutualization.

As a result,  the University, as the group policyholder, was granted shares of common stock in the new company, Prudential Financial, Inc. These shares represented the USC plan’s contribution to Prudential’s retained profits from the plan. In 2010, USC converted the stock to cash, which is being held in a University account together with the dividends paid with respect to such stock.

Rather than keeping the money associated with the Prudential’s demutualization, as the University is legally entitled to do, the USC Board of Trustees has decided to distribute the proceeds  to qualified plan participants.  

The answers below have been prepared to address individuals’ questions about eligibility and the distribution of proceeds.  Individuals also can direct questions to the USC Benefits Office at 803.777.6650 or email the USC Benefits Office at prudential@sc.edu.

  1. Who is eligible to receive funds in this situation?
  2. How do I know if I belong to the plan and if I am in one or more of the four classes of participants?
  3. If I believe that I am eligible for a payout, should I do anything?
  4. I signed up for the USC insurance plan after December 15, 2000, will I receive a payout?
  5. I was a beneficiary on a Prudential policy and actually collected after my spouse [or other insured] died before 2000. Will I receive a payout?
  6. How much will I receive?
  7. Will everyone receive the same amount?
  8. Will the payout be a lump sum or installments?
  9. If I receive a payout will I have to pay taxes on it?
  10. If I receive a payout, will this affect my insurance coverage?
  11. How will people be notified?
  12. When will the notification letters go out? When can we expect to receive the money?
  13. What about participants who died before 12/15/00; are they entitled to payouts?
  14. What if a participant on 12/15/00 died after 12/15/00. Will there be a payout?
  15. If the participant is deceased, what does a beneficiary, the next of kin, or estate administrator do in response to the notification letter?

1.       Who is eligible to receive funds in this situation?

Those who were actively participating in the plan or were otherwise eligible for a life insurance benefit from the Prudential plan – as of December 15, 2000.  Eligibility decisions are based on December 15, 2000, the date when Prudential announced its plans to become a company owned by stockholders. Specifically, there are four classes of Prudential participants who are eligible to receive a payout, as follows:

  1. If you  were employed and having premium contributions for the group life insurance offered under the Prudential insurance plan deducted from your pay, as of December 15, 2000.
  2. If Prudential had declared you disabled as of December 15, 2000, and your insurance was being continued without your having to make premium payments.
  3. If you were retired from USC under the South Carolina Retirement System and met the requirements for a Prudential death benefit of between $1,000 and $5,000 payable upon your death, as of December 15, 2000.
  4. If you had terminated your group term insurance coverage prior to December 15, 2000, but still had a small amount of paid-up cash value insurance in force on December 15, 2000.

If USC records indicate that you were a USC insurance plan participant falling into one or more of the above four classes, you will receive a payout.

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2.      How do I know if I belong to the plan and if I am in one or more of the four classes of participants?

You will receive, or have received, a letter from USC notifying you of your eligibility and seeking confirmation of your current telephone number, mailing address, and email address.

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3.      If I believe that I am eligible for a payout, should I do anything?

No. Eligible participants for whom the University has addresses will be mailed a letter of notification beginning mid-October 2010. If you have not received a letter by November 1, 2010, and believe that you qualify to be in one of the four eligible classes, contact the USC Benefits Office to see if you are on the list of eligible participants for whom we do not have a current address. Telephone the USC Benefits Office at 803.777.6650 or email the USC Benefits Office at prudential@sc.edu.

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4.      I signed up for the USC insurance plan after December 15, 2000, will I receive a payout?

No. Those who enrolled in the plan after December 15, 2000, are not eligible. Only individuals in one of the four eligible classes on the date Prudential announced its plans to become a stockholder-owned company are eligible.

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5.      I was a beneficiary on a Prudential policy and actually collected after my spouse [or other insured] died before 2000. Will I receive a payout?

No. The person insured, for whom you were the beneficiary, had to have been covered by the plan and entitled to a death benefit on December 15, 2000, to be eligible.

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6.       How much will I receive?

Payout depends on whether you are a member of one or more of four classes of participants.

  • If you ONLY had a paid-up policy, the amount will be based on the amount of dividends applied to purchase the paid-up insurance compared to the total contributions (i.e., the total dividends applied plus the total premium contributions paid) of all other eligible participants – approximately 1,800 people.

Those in the paid-up cash value group will receive a check between $50 and $700.

  • If you are an active employee, a disabled employee, or a retiree with a death benefit, regardless of whether  you also had a paid-up policy, the amount you will receive is based on the amount of premium contributions you made up until 12/15/00, compared to the total contributions of all other eligible participants.

Those in the active employee group will receive a check between $50 and $8,000.

Those in the disabled employee group will receive a check between $50 and $5,000.

Those in the retired employee group will receive a check between $130 and $7,000.

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7.       Will everyone receive the same amount?

No.  Payouts will be based upon the amount contributed to the plan over the course of an individual’s participation up until 12/15/00. 

The exception to this is for individuals who fall only in the fourth class of paid-up insurance.  For those in the paid-up classification, the determinant is dividends applied for a particular individual to purchase paid-up coverage.

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8.      Will the payout be a lump sum or installments?

A lump sum payment in the form of a check. Checks will range from $50 to $8,000.

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9.      If I receive a payout will I have to pay taxes on it?

Possibly, and you may receive an IRS tax form reporting this payment. USC is seeking a ruling from the IRS regarding whether this payment will constitute income subject to taxation. The University will share this information when the ruling is received. However, you should rely upon your own advisors for counsel on taxation matters.

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10.       If I receive a payout, will this affect my insurance coverage?

No.

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11.       How will people be notified?

There will be two mailings. The first letter is a notification of your eligibility for participation and a request for confirmation of telephone, mailing address, and email address contact information. A reply from each participant to the request for contact information is required before a second letter, the payout check and tax information will be mailed.

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12.      When will the notification letters go out? When can we expect to receive the money?

We expect that notification letters will be mailed starting mid-October 2010. We are making every effort to locate the addresses for all eligible participants, as well as the estates of those deceased. Soon after we receive the return-confirmation of contact information from the participant, a second letter and check will be mailed. Our goal is to have all checks mailed to eligible participants before 12/31/2010.

December 2010 Update: Checks will be mailed as soon as possible after the University receives requested guidance from the IRS. The University has requested a Private Letter Ruling from the Internal Revenue Service (IRS).  The request was made to obtain guidance for you and the University about the taxation treatment of your distribution. It is important that the University receive this guidance before distributing checks. For example, the ruling will instruct the University about whether your payment is subject to withholding. Based upon recent conversations we have had with the IRS, we suspect it is unlikely the University will receive this guidance during 2010.

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13.       What about participants who died before 12/15/00; are they entitled to payouts?

They would not be entitled to a demutualization payout. However, please contact the USC Benefits Office if a claim for death benefits has not yet been filed. The Benefits Office will explain the claims process for death benefits and forward a claim form with instructions to the beneficiary. The beneficiary can schedule an appointment with the Benefits Office for personal assistance

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14.      What if a participant on 12/15/00 died after 12/15/00. Will there be a payout?

Yes. If on 12/15/00, the individual was an active employee, a covered retiree, insured as disabled, or had in-force paid-up insurance (that is, the individual met requirements to be in one or more of the four classes listed in the answer to question 2) and died sometime after 12/15/00, the beneficiary or estate would receive a payout based on the contributions up until 12/15/00.

The beneficiary (or estate in the absence of a living beneficiary) should contact the USC Benefits Office if a claim for death benefits has not yet been filed. The Benefits Office will explain the claims process for death benefits and forward a claim form with instructions to the beneficiary.The beneficiary can schedule an appointment with the Benefits Office for personal assistance. 

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15.      If the participant is deceased, what does a beneficiary, the next of kin, or estate administrator do in response to the notification letter?

The beneficiary, next of kin, or estate administrator should contact the Benefits Office. The claims process for death benefits will be explained and a claim form with instructions forwarded to the entity. The entity may schedule an appointment with the Benefits Office for personal assistance. Telephone the USC Benefits Office at 803.777.6650 or email the USC Benefits Office at prudential@sc.edu.

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