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Estate Tax And Investment Advice Among First Issues Out Of The Gate

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Estate Tax And Investment Advice Among First Issues Out Of The Gate



The first week of the new 108th Congress confronted the life insurance industry with a couple of old battles, permanent estate tax repeal and investment advice.

Legislation making repeal of the estate tax permanent was introduced by Rep. Jennifer Dunn, R-Wash., with more than 50 bipartisan co-sponsors.

The legislation, H.R. 57, will likely be the main vehicle for those seeking estate tax repeal, although other members of Congress sponsored bills seeking immediate repeal.

For example, on the House side, Rep. Christopher Cox, R-Calif., introduced H.R. 51 to immediately repeal the estate tax.

On the Senate side, Sen. Blanche Lincoln, D-Ark., is sponsoring a more modest approach, S. 34, which would repeal the estate tax immediately only for family-owned businesses and farms.

Interestingly, permanent repeal of the estate tax was not contained in the massive tax cut package released last week by President Bush.

However, David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says opponents of repeal should not take any comfort in that fact.

While permanent repeal was not addressed in the Presidents package, Winston says, supporters of repeal will try to address it elsewhere, possibly at the Senate Finance Committee or on the floor of the Senate.

Indeed, President Bush said in a statement accompanying release of his package that he will continue to press Congress to make repeal of the estate tax permanent.

The current status of the estate tax has caused estate planning difficulties.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax will be gradually phased down until it is eliminated on Jan. 1, 2010.

However, because of a sunset provision in that legislation, the estate tax will come back into being, exactly as it existed before the act was passed, on Jan. 1, 2011.

Speaking of the Presidents tax plan, the American Council of Life Insurers, Washington, is hoping to encourage Congress to add a provision based on its Lifetime Annuity Payout concept.

Under ACLIs LAP proposal, retirees who opt to receive their retirement savings in the form of an annuity would be taxed at the capital gains rate rather than the higher individual rate.

Jack Dolan, an ACLI spokesman, notes that President Bush discussed as part of his economic package the need to address the financial concerns of seniors.

“What better way to address it than by integrating the LAP proposal into his plan,” Dolan says.

Contributions to annuities, Dolan says, bolster the economy by increasing the national savings rate. At the same time, he says, they relieve the risks and burdens of asset management in retirement.

Turning to investment advice, agents and companies are again supporting a proposal by House Education and the Workforce Committee Chairman John Boehner, R-Ohio, that would allow insurance agents, companies and others that currently provide services to pension plans to also provide investment advice to plan participants.

The Boehner bill is expected to be formally introduced shortly.

Agents and companies oppose an investment advice provision contained in S. 9, legislation introduced by Senate Democratic Leader Tom Daschle, D-S.D., that takes a different approach.

Under the Boehner approach, those providing investment advice to plan participants would have to meet strict disclosure and fiduciary safeguards.

By contrast, the approach in S. 9, is a “safe harbor” provision that protects plan sponsors from liability if a “qualified” investment advisor designated by the sponsor meets certain criteria.

One of the criteria is that the advisor must be registered as an investment advisor, as a broker/dealer or as a registered representative.

There is no qualification provision regarding insurance agents.

Daschle says his provision will assure that any investment advice is truly independent.

But Boehner criticized the Daschle proposal, saying it would not expand worker access to investment advice.

The vast majority of Americans, Boehner says, would not receive access to investment advice from their employers even if the Daschle proposal were to become law.

Industry representatives agree with Boehner.

Winston says the safe harbor approach contains no incentives for plan sponsors to provide investment advice to participants.

Some 84% of plan participants, Winston says, have no specific investment advice, which is a major gap given the shift from defined benefit to defined contribution plans.

The Boehner approach addresses this issue, Winston says, while the Daschle approach does not.

Dolan says life insurers hope to get the Boehner bill over the goal line.

He notes that the legislation passed the House with a strong bipartisan majority in the 107th Congress. However, Dolan says, the trouble lies in the Senate.

ACLI, he says, plans to keep sending the message that the Daschle approach does not work and will not provide participants with what they need and want.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 13, 2003. Copyright 2003 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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