ACLI Applauds Committee OK Of Bill Encouraging Annuitizing

By

Washington

The House Ways and Means Committees approval of legislation that would encourage individuals to annuitize part of their retirement savings could represent a turning point in retirement savings policy, says Frank Keating, president of the American Council of Life Insurers, Washington.

“The most important thing,” Keating told National Underwriter, “is the focus on shifting away from tax cuts for the sake of tax cuts to a policy of encouraging socially responsible behavior.”

Keating notes that the mortgage interest deduction has had a tremendous impact on encouraging home ownership and wealth accumulation.

Similarly, he says, the deduction for charitable giving encourages charitable activities.

Now, Keating notes, the baby boom generation is approaching retirement with very little retirement savings accumulation. He calls this a “demographic time bomb,” that is extremely worrisome.

That is why ACLI is so pleased, Keating says, that the Ways and Means Committee supports using the tax code to encourage private retirement savings.

The legislation, H.R. 1776, would allow individuals to exclude up to $2,000 of retirement income annually for up to five years if they take their retirement savings in the form of an annuity.

The provision applies to savings now in 401(k) plans and Individual Retirement Accounts.

“This tax incentive may appear modest to some, but it sets a precedent,” Keating says. “It would establish into tax law the social benefit of encouraging individuals to take a lifetime stream of income at retirement.”

During the consideration of H.R. 1776, a major controversy erupted between Ways and Means Committee Republicans and Democrats, during which Committee Chairman Bill Thomas, R-Calif., called the Capitol Hill police to evict Democrats from the Committees meeting room.

Thomas has since apologized for his actions.

Keating says he does not believe the controversy will affect the annuity provision ACLI supports.

He notes that the controversy erupted over an issue unrelated to the annuity provision, and there is always a certain amount of partisanship in Congress.

Keating says that since joining ACLI earlier this year, he has worked to move the association toward bipartisanship.

For example, he says, ACLIs top lobbyist, Kim Dorgan, is a strong Democrat.

ACLI, Keating says, wants to work with all members of the Ways and Means Committee on the issue of retirement security.

In other news, the life insurance industry is concerned that the Treasury Department is reconsidering a proposal that could impose substantial burdens on insurance agents trying to comply with the customer identification program (CIP) mandated by the USA Patriot Act.

Carl Wilkerson, chief counsel with ACLI, notes that during the first stages of rulemaking relating to the CIP, Treasury considered requiring photocopies of drivers licenses or other documents used to verify that customers are who they say they are.

ACLI, he says, opposed this as unnecessarily burdensome on insurance agents and companies. For example, Wilkerson says, agents might, in effect, have to travel with miniature copying machines in order to meet the requirement.

ACLI instead advocated a certification standard in which the agent would attest that he or she had examined the customers identification. Treasury ultimately adopted this standard.

However, some members of Congress raised concerns about this, Wilkerson says, and now Treasury is seeking information from the public about requiring a photocopy of identification documents.

ACLI, he says, working with the National Association of Insurance and Financial Advisors, has sent alerts to members asking them to send in letters to Treasury opposing any photocopy requirement.

The letters must be filed with Treasury by July 31.

Finally, the Internal Revenue Service has issued two Revenue Rulings aimed at curtailing the use of life insurance and annuities to avoid current taxation on investment earnings.

However, the rulings are not expected to have a major impact on the industry.

The two rulings, numbers 2003-91 and 2003-92, involve arrangements in which life insurance and annuity contracts are wrapped around other investments in a way that, according to the IRS, seeks to defer tax on the investment earnings.

Laurie Lewis, chief counsel for federal taxation with ACLI, says the first ruling, 2003-91, really does not break any new ground.

Rather, she says, it sets forth in summary fashion the principles behind the concept of investor control.

While there are some technical issues ACLI would like to clarify, Lewis says the ruling is not alarming.

The second ruling, 2003-92, involves certain partnership arrangements. These tend to be private placements, Lewis says, that are occurring primarily offshore.

While some domestic companies do these arrangements, Lewis says, they are not a mainstream design.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 28, 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.