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Watching And Waiting Continues Over Industry Tax Issues

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The three-pronged battle over life insurance taxation remained in a holding pattern last week with the industry awaiting possible legislation on corporate-owned life insurance, a hearing on split-dollar and a Senate vote on repeal of the estate tax.

“We are expecting an examination of some of our products as a result of the Enron debacle,” says Jack Dolan, a spokesman for the American Council of Life Insurers, Washington.

Unfortunately, Dolan adds, the country is also back in a deficit, and a budget deficit puts extra pressure on certain industries. “We will be fighting to ensure that Congress does not unfairly attack consumer-oriented insurance products,” he says.

On COLI, Sen. Jeff Bingaman, D-N.M., is expected to introduce legislation aimed at curbing alleged abuses involving policies that cover low-wage workers, so-called “janitors insurance.”

While details of the legislation have not been presented, sources tell National Underwriter Bingaman is examining an approach that would deny a business any tax-favored treatment involving a COLI policy unless the employees directly benefit from it.

That contrasts sharply with the legislation introduced recently by Rep. Gene Green, D-Texas, H.R. 4551, which would simply require companies to provide a written notification to employees covered by a COLI policy that discloses the insurance company, the face value of the policy and the named beneficiary.

David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFAs policy on COLI goes beyond that, stating employers should inform and obtain the consent of employees covered by a COLI policy.

Turning to split dollar, an expected Senate Finance Committee hearing still has not been scheduled and may not be until after Congress returns from its Memorial Day recess on June 3.

Split dollar came under Congressional scrutiny when it was disclosed that former Enron Chairman Kenneth Lay benefited from a large split-dollar policy.

Committee Chairman Max Baucus, D-Mont., said he would try to schedule a hearing on split dollar and its relationship to the politically hot issue of executive compensation before Memorial Day.

However, sources said there does not seem to be enough time for the committee to put together a hearing prior to the recess.

Finally, on estate tax repeal, a Senate vote is possible before Memorial Day. Under an agreement with Republicans, Senate Majority Leader Tom Daschle, D-S.D., agreed to schedule a vote on permanent estate tax repeal, with the proviso that 60 votes would be needed to prevail.

But a date had not been set at press time.

Turning to another major issue issue, retirement security advice, both agents and companies are making a major effort to assure that any new pension legislation contains a provision allowing those who currently provide services to pension plans to also provide investment advice to plan participants.

In particular, Sen. Tim Hutchinson, R-Ark., has introduced S. 1978, which would accomplish that goal.

In a letter to Hutchinson thanking him for introducing S. 1978, ACLI says the downturn in the financial markets and the Enron bankruptcy highlight the need for plan participants to have access to investment advice.

In a separate letter to Baucus asking him to support S. 1978, Winston of NAIFA notes that another investment advice proposal currently pending in the Senate, S. 1677, would effectively bar state-licensed insurance agents from providing investment advice.

Winston says that under S. 1677, employers would not face fiduciary liability under the Employee Retirement Income Security Act if they hire a “qualified investment advisor” to provide advice to employees.

However, the way the term “qualified investment advisor” is defined in S. 1677 excludes state-licensed insurance agents, he says, from providing advice unless they are also licensed under state or federal securities laws.

This is based on a misapprehension that certain financial service professions uphold higher standards of professional and ethical conduct than NAIFA members, he says.

“In fact, NAIFA members–and other financial services professionals who would be qualified to provide investment-related services under the bill–are closely regulated and meet all of the relevant measures for providing sound professional services to their clients,” Winston says.

In addition, he says, S. 1677 does nothing to address the real barrier to employers providing investment advice, which is ERISAs prohibited transactions rules.

On the other hand, he says, S. 1978, permits all qualified professionals to provide advice by creating a new ERISA exemption subject to strict disclosure requirements.

Those providing advice will be subject to regulation by the Labor Department, with respect to ERISAs fiduciary standards, as well as their own functional regulators, he says.

Winston adds that similar legislation in the House, H.R. 2269, was approved last year by a 280-144 vote, and is thus truly bipartisan legislation.

Reproduced from National Underwriter Life & Health/Financial Services Edition, May 13, 2002. Copyright 2002 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.


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