GAMHC Liquidation Process, Distributions FAQs

This document is intended as a plain English discussion of the liquidation process and does not create any contractual rights or override the plan of reorganization or any other official document of the GAMHC liquidation.

The latest news is available at the General American news page.

Brief history

As a result of a liquidity crisis, General American Life Insurance Co. (GALIC) was placed under Missouri Department of Insurance (MDI) administrative supervision in August 1999. At that time, all parties agreed that the best solution was the sale of GALIC and its affiliates. Metropolitan Life Insurance Co. (MetLife) purchased the companies from the parent, General American Mutual Holding Co. (GAMHC), for $1.2 billion on Jan. 6, 2000. MDI administrative supervision ended at that time.

All sale proceeds plus interest income (less any administrative costs, taxes and settlements from litigation or legal claims stemming from the sale) will be distributed to eligible members who were the owners by law of GAMHC and its subsidiary, General American Life, on Jan. 5, 2000.

Under Missouri law, the statutory liquidator -- the director of the Department of Insurance -- implements this distribution under the supervision of Cole County Circuit Court Thomas J. Brown. The court case is called Finke v. GAMHC in Cole County Circuit Court, but the case is not adversarial litigation.

The process is subject to the 1999 GAMHC reorganization plan (the “plan”), the January 2000 stock purchase agreement between MetLife and GAMHC, the plan for the first distribution, and the current supervision of the liquidation court. The plan and stock purchase agreement are available on the MDI Web site.

Recent events

In late March 2005 GAMHC mailed its second distribution of $200 million to the eligible members.

In February 2005 the SDL filed a report to the court regarding GAMHC's operations.

In January 2005 W. Dale Finke replaces Scott Lakin as the Director of the Department of Insurance and as the Liquidator of GAMHC.

In October 2004 and March 2005 GAMHC mailed initial distribution checks to eligible members who were included in the August mailing and whose objections were resolved.

In August 2004 GAMHC re-mailed notice packets on the initial distribution of sale proceeds to eligible members whose packets were returned by the U.S. Post Office after the April 2003 original mailing or after the October, 2004 follow up.

In July 2004 GAMHC continued the initial distribution by mailing checks to eligible members whose objections were resolved by the SDL’s determination of claim letters.

In March 2004 the SDL filed a report to the Court regarding GAMHC’s operations.

In February 2004 GAMHC sent supplemental checks to eligible members who were not included in last fall’s initial distribution.

The initial distribution of almost $1 billion was made in September 2003 to all eligible members except:

1. eligible members who submitted an objection;
2. eligible members whose notice packets were returned by the post office as undeliverable; and
3. eligible members who contacted the distribution call center and notified GAMHC they did not receive a packet.

A follow up notice-packet mailing was made in October 2003 to eligible members who had not received the packet in April.

In April 2003 GAMHC mailed distribution notice packets to all members. The notice packets contained information on the liquidation and informed recipients how much they could expect from the initial distribution.

In February 2003 Cole County Circuit Judge Thomas J. Brown – the judge supervising the distribution of sales proceeds – approved the notice for initial distribution of $1 billion to the eligible members of GAMHC.

Over a two-year period, the GAMHC receivership continued managing and investing the funds until the contractual time expired for MetLife to file any lien related to the sale.

On Dec. 6, 2000, Brown issued a post-hearing order setting rules on how to distribute $1.2 billion in proceeds from the sale of GAMHC’s assets to MetLife. Brown's order provided that:

• Eligible policyholders (known as “eligible members”) as of Jan. 5, 2000, would participate in the distribution
• All eligible members would receive a "fixed share" that equally divides 5 percent of the net sales proceeds. Eligible members would receive so-called "variable shares" of the remaining 95 percent of the funds under a formula that takes into account the number of policies held, their age, amount and other factors. Brown accepted the special deputy rehabilitator's proposal on the broad terms of the formula.
• Parties that wanted to legally challenge the terms of the MetLife sale or management decisions that precipitated the sale had to file a "claim" by Jan. 31, 2001, or forfeit their right to do so.

The full text of Brown's order is available on the MDI site as are the claim form and public notice.

Frequently asked questions

I owned a General American policy on Jan. 5, 2000, but I have not received a notice packet or a check. What should I do?

Contact the GAMHC call center at 1-800-569-4721.

Can I cash in or change coverages in my General American policy without jeopardizing my share of the distribution of sales proceeds?

Yes.

Will the distribution affect my investment in life/annuity contracts with General American Life Insurance Company or MetLife?

The distribution will not affect your current policy or contract in any way. General American Life continues to operate as a subsidiary of GenAmerican Financial Corp., an affiliate of MetLife.

When will the members of GAMHC receive their distribution of the proceeds of the sale to MetLife?

GAMHC has made two liquidating distributions to the eligible members. The first distribution of $1 billion was made over several mailings between September, 2003 and March, 2005. The second distribution of $200 million was made in late March, 2005. At least one more distribution is planned. However the timing of that distribution depends on the resolution of several legal issues.

How many distributions will the members of GAMHC receive?

At least three. GAMHC does not know when the final distribution will be.

How did GAMHC determine the distribution amounts?

GAMHC used the percentage that represents the respective eligible member’s total fixed and variable shares and multiplied it by the initial distribution amount of $1 billion. More information regarding this process is available in the member information booklet.

Is the initial distribution subject to income tax?

The first two distributions are generally subject to federal income tax in the year that you receive the check. The liquidator has obtained a private letter ruling from the Internal Revenue Service, which confirms that membership interests qualify as a capital asset and the entire amount of all liquidating distributions to eligible members constitutes a long-term capital gain for federal income tax purposes. Like all capital gains, whether eligible members have to pay additional federal income taxes from the recognition of additional long-term capital gain will depend upon their specific circumstances. For a complete copy of this private letter ruling, see the General American News page.

What is the cost-basis for this liquidating distribution?

The liquidator has obtained a private letter ruling from the Internal Revenue Service that the entire amount of the initial distribution to eligible members will be taxed for federal income tax purposes as a long-term capital gain with a zero basis. For a complete copy of this private letter ruling, see the General American News page. However, the liquidator urges eligible members to consult their tax advisors on any tax consequences of the distribution, including any state or local tax consequences.

What tax rate will apply to future distributions?

It is not clear at this time if the federal income tax treatment of future distributions will change. The exact federal (and, perhaps, state and local) tax rate will depend on the eligible member’s specific tax circumstances. The liquidator urges eligible members to consult their tax advisors on any tax consequences of any distribution.

GAMHC has my taxpayer identification number (or Social Security number) listed on its records, but I am only one of the people listed on the check. Will you issue 1099s to all of us?

No. Only one taxpayer identification number is associated with each eligible member even though multiple names may appear on the check. If your taxpayer identification number is the number of record for a policy/account that has multiple owners you will receive a Form 1099-DIV for the entire distribution even though some proceeds belong to other taxpayers. As the nominee, you will need to issue 1099s to each of the other owners (except for your spouse) for such other owners’ respective shares of the proceeds of the distribution and submit copies of these 1099s (along with a Form 1096) to the IRS.

How can I obtain a duplicate 1099-DIV?

If your distribution check was issued in 2003, you may obtain a duplicate 1099-DIV through the automated system by contacting the call center at 1-800-569-4721. Representatives are also available to assist Monday through Friday between 9 a.m. and 6 p.m. EDT. If your distribution check was issued in 2004, a 1099-DIV will be mailed by Jan. 31, 2005.
The applicability of state and local taxes will depend on the specific circumstances of each eligible member. Please consult your tax advisor with respect to such taxes.

Where should I report the income on my federal income tax return?

For individuals, the distribution should be reported on Line 8 of Schedule D to form 1040.

How do I report this income on Schedule D?

GAMHC is not able to provide specific tax advice; you should refer to instructions for Schedule D of Form 1040 and IRS Publication 550, or you may request assistance from a personal tax advisor or the IRS. However, the income will be reported on line 8 of Schedule D. You should describe the property as your membership interest in GAMHC. For the remainder of the entries for line 8 to Schedule D you should refer to the specific instructions for line 8. All distributions were made after May 5, 2003.

Did I receive my check after May 5, 2003?

Yes. There were NO liquidating distribution checks mailed out before May 6, 2003.

What, if any, are the continuing roles of General American and MetLife?

MetLife and GAMHC are parties to the stock purchase agreement, which sets forth the terms of the sale of GenAmerica Corp. to MetLife. The eligible members of GAMHC are essentially the policyholders of GALIC as of Jan. 5, 2000. GALIC and MetLife have an important interest in making sure that this process is fair and equitable to GALIC's policyholders. GALIC also has entered into an administrative services agreement to assist the liquidator in implementing the plan.

Are the GAMHC proceeds invested? Will the amounts distributed to eligible policyholders include the investment income earned on these funds prior to the distribution?

The GAMHC proceeds are invested through Central Bank of Jefferson City and A.G. Edwards & Co. The SDL monitors compliance with the investment plan approved by the court; the investment plan is designed to be more conservative than required by law. All investment earnings will go into distributions to eligible GAMHC members. Of course, allowed claims, administrative expenses and taxes will be deducted before any final distribution of the proceeds.

How are the proceeds of the sale currently invested?

Since Jan. 6, 2000, the GAMHC sale proceeds have been invested in a portfolio of short-term, fixed-income securities. The securities include U.S. government notes, U.S. government agency notes and bonds, highly rated corporate and municipal bonds and collateralized mortgage obligations. The purchase of securities has focused on safety of principal, liquidity and investment yield.

What have the investments earned since the initial investment in January 2000?

Through Dec. 31, 2009, the original $1.2 billion in sale proceeds had been reduced to $59,703,413. This amount is net of all distributions occurring between September 2003 and Dec. 31, 2009, and takes into account all tax refunds, tax payments and administrative expenses since January 2000. The total investment return is $237,755,894. A breakdown of investment return and changes in the portfolio balance is available.

What happens if an eligible policyholder changes his/her mailing address before the distribution has been made? Who should be notified of any such change? Who can answer further questions I have about the distribution?

Contact the GAMHC call center at 800-569-4721 between 9 a.m. and 6 p.m. EDT, Monday through Friday.

See the General American news page for news releases and documents on this matter.