NAIFA And AALU Protest Call For Repeal Of COLI Grandfather Rule
Nothing in the legislative history of the Tax Reform Act of 1986 indicates that a grandfather rule applied to pre-June 21, 1986, corporate-owned life insurance policies was intended to be temporary, two life insurance associations say.
In a joint statement sent to the Senate Finance Committee, the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors say that to the contrary, the grandfather rule was intended and drafted to be permanent.
The statement was signed by Albert J. “Bud” Schiff and Richard A. Koob, presidents of AALU and NAIFA, respectively.
The statement is in response to a report issued recently by the staff of the Joint Committee on Taxation calling for repeal of the grandfather rule, saying it is no longer needed to provide “transition relief.”
Schiff tells National Underwriter that the groups thought it was essential to voice their vigorous objections to the recommendation.
“It would be terrible tax policy and very unfair to retroactively reverse legislation that has been relied on for approximately two decades,” Schiff says.
In its report, the JCT staff says the grandfather rule is no longer needed.
“If the 1986 grandfather rule was intended to provide transition relief to businesses that had purchased life insurance contracts before the 1986 date, sufficient time has passed that a redeployment of such businesses assets could have been possible,” JCT staff says.
“The grandfather rule can no longer serve any reasonable need for transition relief,” the report concludes.
But AALU and NAIFA say the tax-writing committees were well aware of the distinction between a permanent grandfather rule and a temporary transition rule, and could have adopted the latter if that had been their intention.
Moreover, in 1996, Congress “went out of its way” to reconfirm the 1986 grandfather rule, the groups say.
“Ten years after adoption of the original 1986 grandfather, Congress believed that grandfather continued to have merit and specifically protected pre-June 21, 1986, policies from the new 1996 rule denying interest deductions for life insurance policy loans,” AALU and NAIFA note.
The associations note that the JCT staff report came in the wake of an investigation of alleged executive misconduct at Enron.
Part of the investigation involved charges that Enron executives benefited unfairly from pre-1986 COLI policies.