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Mystery COLI Amendment Defeated In House Budget Committee Vote

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Mystery COLI Amendment Defeated In House Budget Committee Vote



In the wee hours of Thursday, March 13, the House Budget Committee defeated a proposal by Rep. Rahm Emanuel, D-Ill., that would have placed limitations on corporate-owned life insurance policies in a way that is still causing confusion in the industry.

The vote came on an amendment offered by Emanuel to the fiscal year 2004 budget currently being considered by the committee. The amendment was defeated by a party line vote of 17-24.

However, the exact text of the amendment is unclear and Emanuels office had not responded to inquiries about the amendment by press time.

Initially, it was believed the amendment would be based on a proposal that was originally offered in the fiscal year 1999 budget by former President Bill Clinton.

That proposal would have, essentially, limited COLI coverage to individuals who are 20% or more owners of a business.

However, during the Budget Committees consideration, the amendment was described as allowing businesses to purchase COLI so long as the proceeds from COLI policies were used to finance Pell Grants, which are federal government payments aimed at aiding low- and middle-income students afford college tuition.

Industry lobbyists say they, too, have been trying to get the language of the amendment, but at press time have been unable to do so.

“We know Rep. Emanuels proposal was bad policy,” says Morris Goff, assistant vice president for tax with the American Council of Life Insurers, Washington.

“It appears it would have been confiscatory if adopted,” Goff adds. “This would have led to the question: Why would anyone purchase COLI?

“We wish we had been accorded the common courtesy of seeing the amendment before it was proffered,” Goff says.

Tom Korb, director of government affairs for the Association for Advanced Life Underwriting, Falls Church, Va., says he does not believe anyone has seen the actual language, but it seems like a tax penalty for owning life insurance.

That, Korb says, has already been rejected by Congress on a bipartisan basis.

“AALU,” he adds, “will oppose any attack on the tax foundation of life insurance.”

In other tax news, a bipartisan group of House Ways and Means Committee members has introduced legislation that would repeal Sections 809 and 815 of the tax code.

The legislation, H.R. 808, was introduced by Reps. Amo Houghton, R-N.Y., and Richard Neal, D-Mass., and includes numerous co-sponsors, including the committees Ranking Democrat, Rep. Charles Rangel, D-N.Y.

Section 809 imposes a tax on mutual life insurance companies by reference to the earnings of stock companies.

Section 815 imposes a tax on policyholder surplus accounts held by stock companies.

In his fiscal year 2004 budget, President Bush proposed repealing Section 809, but not 815.

Jack Dolan, a spokesman for the ACLI, praises H.R. 808. Sections 809 and 815 are both outdated provisions of the tax code, Dolan says, and they will have to be repealed sooner or later.

On the health front, a bipartisan group in the House has introduced industry-backed legislation that would provide tax credits for the purchase of health insurance.

The legislation, called the Securing Access, Value and Equity Act (SAVE), would provide up to $1,000 annually for individuals, $2,000 for married couples and $3,000 for families with children, for the purchase of health insurance among low- and moderate-income workers who do not have employer-provided coverage.

The bill number was not available at press time.

Janet Trautwein, vice president of government affairs for the National Association of Health Underwriters, praises the SAVE Act as an important component to an overall program to increase health care access.

“It is a private-sector solution to a difficult public problem and it encourages personal responsibility by giving people the tools they need to make their own health care decisions,” she says.

President Bush also proposed health insurance tax credits in his fiscal year 2004 budget.

Finally, the General Accounting Office says mutual fund fees may be increasing. In a report to the House Financial Services Committee, GAO says mutual fund expense ratios have increased since 1998.

GAO attributes this largely to declining assets in many stock funds, but says this factor alone does not explain the entire increase.

Committee Chairman Mike Oxley, R-Ohio, questions whether another factor might be lack of proper disclosure.

While investors have become sensitive to certain fees, such as sales loads, he says, other fees are either hidden or opaque, escaping the attention of even savvy fund investors.

“This precludes them from comparison shopping, a strong market influence that would encourage fee-based competition and would likely bring down costs,” Oxley says.

While no legislation has been proposed, Oxley says his committee will continue to study mutual fund fees, as well as issues of corporate governance and the role of independent fund directors.

Reproduced from National Underwriter Edition, March 17, 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.