After successfully fighting off a major challenge to the tax status of whole life insurance, industry representatives are hopeful that 2002 will be a somewhat quieter year on the tax front.
The challenge to the tax treatment of inside buildup came up in the context of repeal of the estate tax, notes David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va.
The House Ways and Means Committee was set to consider capping the tax-free inside buildup of whole life as a way to pay for a proposed repeal of the estate tax, he says. “We had to react very quickly to defeat it.”
Phil Anderson, senior vice president with the American Council of Life Insurers, says that when the issue arose, the industry launched a major effort to protect whole life insurance for Americans.
Winston notes that NAIFA and ACLI worked closely together in a coordinated effort to defeat the inside buildup proposal.
ACLI, Winston says, set up an 800 number that allowed direct connections to members of Congress. In the six hours before a committee caucus that was considering inside buildup, Winston says, some 6,000 NAIFA members called the 800 number to register their opposition to members of Congress.
Within a few days, he adds, some 24,000 calls were made.
As a result, Winston says, the inside buildup provision was taken out of the legislation and never even proposed during the committees consideration.
“That was the highlight of the year legislatively,” he says.
Anderson adds, “I hope this will put the issue to bed for a while.”
Nonetheless, Anderson notes, the estate tax repeal issue that was the context for the inside buildup controversy was a troubling one for ACLI.
“It was a very difficult issue,” he says. “It required a skilled and well-balanced approach. We walked a very fine line so that we would not be at odds with our policyholders.”
Ultimately, Congress passed legislation that repeals the estate tax for only one year. Under the current law, the estate tax will end on Jan. 1, 2010, but due to a sunset provision, it will return on Jan. 1, 2011.
This has led to calls for Congress to revisit the estate tax issue to provide greater certainty for estate and retirement planning.
Indeed, Winston says, the House was planning to consider legislation to make estate tax repeal permanent, but the tragedy of Sept. 11 knocked the issue off the table for the near future.
Winston adds that other life insurance tax issues could be on the table in 2002 due to the current economic situation. The life insurance industry, he says, will have to monitor new tax bills to assure it is not adversely affected.
“If life insurance products are threatened, NAIFA will take swift, immediate action to counter such proposals,” Winston says.
Turning to other issues, Anderson notes that ACLI plans to make a major effort to get Congress to consider optional federal chartering of life insurance companies.
ACLI, he says, will be aggressive in pursuing that goal while at the same time strongly supporting continued improvements in state regulation.
Congress, Anderson says, will be interested in learning about optional federal chartering. He says he expects to see legislation introduced early in 2002, perhaps earlier than many people think.
Also related to Sept. 11 is a terrorism insurance bill that would include a study of the impact of a major terrorist event on the life insurance industry.
As of this writing, Congress was still at odds over certain provisions of the legislation affecting property-casualty companies, and there was a growing possibility Congress would recess without doing anything.
Turning to retirement security issues, Anderson notes that Congress enacted a major pension reform bill in 2001 that will help Americans save for their retirements, the Portman-Cardin bill.
ACLI, he says, will now focus on the distribution side of the equation by pursuing its Lifetime Annuity Payout proposal. Under LAP, those who choose to annuitize their retirement savings will be taxed at the capital gains rate instead of the individual rate.
A bill, H.R. 3320, has been introduced in the House.
Anderson says ACLI will pursue a major communication effort on the need to protect retirees nest eggs for life.
Winston adds that H.R. 3320 would assist NAIFA members by expanding the tools available for retirement planning.
Anderson says ACLI will also pursue efforts to establish an above-the-line deduction for long term care insurance. An above-the-line deduction means the deduction is available to all taxpayers, whether or not they itemize.
Even if there is a short-term deficit problem, Anderson says, the government must find ways to partner with the private sector to take some of this exposure off the governments books.
“We will not be bashful or apologetic about seeking an above-the-line deduction,” Anderson says.
On legal reform, Winston says NAIFA will seek reform of the class action system.
Legislation is pending in both the House (H.R. 2341) and Senate (S. 1712) that would allow defendants in major national class action lawsuits to have the case heard in a federal court instead of a state court.
Winston says that while the prognosis for class action reform is good in the House, it will be a challenge to get a bill through the Senate. “It will be an uphill battle because of the vehement opposition by trial lawyers.”
Anderson says ACLI will be as tenacious as the lawyers.
“Weve made it clear that nobody is going away on legal reform,” he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.