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Boustany Opening Statement: Hearing on AARP’s Organizational Structure and Finances

April 01, 2011

As Chairman Herger said in his opening statement, AARP was created with the praiseworthy goal of promoting independence, dignity, and enhancing the quality of life for older Americans.  Founded with this goal, it was incorporated under section 501(c)(4) of the Internal Revenue Code.  This meant that in return for promoting social welfare and the common good, it would enjoy exemption from federal income taxes.

Today, more than fifty years after its founding as a small nonprofit helping the retired, AARP has morphed into an insurance and advertising powerhouse.  According to the most recent data we have, AARP, Inc. and its for-profit organizations annually process billions of dollars in insurance premiums, and earn nearly $700 million in insurance revenues and over $100 million in advertising revenues.

Only a fifth of its revenue comes from membership dues and contributions.  Since 2002, AARP’s revenue from membership dues has only increased modestly.  Over that same period, however, by partnering with other companies to sell insurance, AARP has experienced gains in its royalty income that any private sector business would envy.  Its revenues have nearly tripled, growing from $240 million to $657 million in 2009.

Yet as AARP, Inc. has grown by leaps and bounds, its funding for charitable work has nearly flat-lined.  Contributions to the AARP Foundation between 2002 and 2009 grew by only 11%, or about $3.1 million, and funding of Legal Counsel for the Elderly actually decreased by about 9%.  The parts of AARP that fulfill its original purpose seem not to be sharing in the bounty that has come to AARP from its insurance-related business activities. 

Another concern regarding AARP is whether they provide excessive compensation to executives, which might suggest the organization exists more for the enrichment of its officers and employees and less for the public good.  In the case of AARP, executive compensation and benefits often far exceed what one would think appropriate for a tax-exempt organization.  The website Charity Navigator compares the compensation of CEOs at charities and nonprofits with expenditures exceeding $500 million.  Looking at these numbers, we see that compensation for AARP’s top executive is a consistent outlier, reaching as high as $1.6 million in 2009. 

In addition, AARP has maintained travel policies that exceed “best practice” recommendations developed by an independent oversight group which included AARP’s then CEO.

The differences in revenue generated and money spent “promoting social welfare and the common good,” suggest that AARP may have strayed from its original mission, and brings into question whether it is appropriate for it to continue to operate as a 501(c)(4) tax-exempt organization.  This is primarily a question for the Internal Revenue Service, and we will be asking them to conduct a review.

As the chairman of the Ways and Means Subcommittee on Oversight, I take the Committee’s oversight duties very seriously.  This is an issue that goes far beyond just one organization.  I intend to take a closer look at the IRS’s administration of the tax-exempt sector and whether the IRS is adequately overseeing the practices of tax-exempt organizations.

Mr. Chairman, I yield back.