Republican Sweep Of Congress Gives Industry Issues A Boost
Retirement security and pension issues important to the life insurance industry got a boost by the Republican sweep of Congress, industry representatives say.
But at the same time, the change in control of the Senate could also enhance President Bushs desire to permanently repeal the estate tax, they say.
Phil Anderson, senior vice president of government relations with the American Council of Life Insurers, says Republican control of Congress for at least the next two years offers great opportunities, but also challenges for life insurers.
Many major themes advanced by Republicans, Anderson says, such as retirement security and individual responsibility, are also important to life insurers.
The challenge for the industry, he says, is to demonstrate that life insurance is the lone industry that can offer products that guarantee income for life.
On estate tax repeal, Anderson says he expects to see a renewed effort to make repeal permanent. (Under current law, the estate tax will phase out on Jan. 1, 2010, but come back into being as it existed in the year 2000 on Jan. 1, 2011.)
However, David Winston, vice president of government affairs with the National Association of Insurance and Financial Advisors, believes that repeal is still unlikely.
In effect, he says, repeal will still need 60 votes in the Senate to prevail. Winston says he believes Senate Democrats will become unified in their opposition to permanent repeal.
Tom Korb, director of government affairs for the Association for Advanced Life Underwriting, Falls Church, Va., agrees.
While the margin favoring repeal will tighten, he notes that in 2001, the Republicans also controlled the Senate. Even then, Korb says, 60 Senators were not ready to vote in favor of a permanent tax package. Based on the initial examination, he adds, it again does not appear that there are 60 votes in favor of permanent repeal following this election.
“Republicans clearly will bring up permanent repeal,” Winston says, “but I still dont think it will succeed in this environment.”
Korb says the results of the vote demonstrate why AALU prefers estate tax reform.
This is the third time in three years that control of the Senate has changed hands, he says, but people have to be able to plan their estates. “Political winds blow in different directions but the need to plan is constant.”
On corporate-owned life insurance, Sen. Jeff Bingaman, D-N.M., who introduced legislation that taxes the death benefit on COLI policies if the employee dies more than a year after leaving employment, is now in the minority.
Korb says the election results will likely lessen some of the pressure on COLI, but AALU stands ready to work on the issue should it arise.
Turning to split-dollar, Korb believes the election could lead to a hearing on the Sarbanes-Oxley Act.
(The issue is whether some employer payments for split-dollar life insurance should be characterized as “personal loans” to employees, which are barred under the Act.)
Turning to retirement security, Winston agrees with Anderson that the issue received a boost by the Republican victory. In particular, he says, the Lifetime Annuity Payout proposal, under which retirees who choose to annuitize their retirement savings would be taxed at the capital gains rate rather than the individual rate, will likely get more hearings in the Senate and possibly advance.
Winston emphasizes that the LAP proposal is bipartisan, but he believes Republicans are more likely to take the lead.
On other tax issues, Anderson says the Treasury Department is looking at major tax reform, which will contain a corporate element.
ACLI, he says, sees an opportunity to address some tax concerns that are a drag on life insurers. These include consolidated returns, Section 809, Section 815 and permanent extension of the current Subpart F provision.
(Under current law, life insurers filing consolidated returns are allowed to deduct only a portion of net operating losses of non-life subsidiaries. Life insurers want the restriction eliminated.
Section 809 imposes an additional tax on mutual companies by reference to the earning of stock companies. Section 815 imposes a tax on policyholder surplus accounts held by stock companies. Life insurers want both provisions repealed.
Subpart F imposes U.S. tax on the investment income earned by foreign subsidiaries of U.S. financial services firms when it is received by the parent. But this treatment will expire at the end of next year. If so, the investment income will be taxable as soon as it is earned by the subsidiary. Life insurers want the current treatment to be permanent.)
On tort reform, Anderson sees a “profound change” in the pace and scope of what Congress will seek and he expects to see a more aggressive tort reform agenda.
The current system, Anderson says, is a real drag on the economy and a major concern for Republicans. In particular, he says, many of the federal judge nominations that have been stalled in the Democrat-controlled Senate will likely move next year. These judges, he says, may be more sympathetic to the need for civil justice reform.
On privacy, Anderson notes there is a significant change at the Senate Banking Committee with Sen. Richard Shelby, R-Ala., assuming the chairmanship. Shelby has been a strong advocate of privacy protections, calling for a system in which financial institutions would need the affirmative assent of their customers before sharing any information.
Anderson says Shelby will make a real difference in the debate.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 11, 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.