Industry Vows A Vigorous Fight Against COLI Restrictions
The life insurance industry is vowing a vigorous fight against legislative language that would severely restrict corporate-owned life insurance.
The controversy surrounds an amendment offered by Sen. Jeff Bingaman, D-N.M., and approved by voice vote in the Senate Finance Committee.
What Your Peers Are Reading
The amendment, which was attached to the National Employee Savings and Trust Equity Guaranty Act, would tax all the benefits paid on COLI policies covering employees who die more than one year after leaving employment.
This treatment would not apply to certain key employees, so long as their number does not exceed 20.
“Corporate-owned life insurance is a vital and important product used by employers for business planning purposes,” says Frank Keating, president of the American Council of Life Insurers, Washington.
“Most businesses rely on the expectation of benefits from these policies to offer benefits to retirees and current employees,” Keating adds.
“On restricting the use of COLI, we could not disagree more with the committees action,” he says.
An ACLI representative says the entire life insurance industry, joined by elements of the business community, has launched a major grass-roots campaign against the COLI language.
Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va., calls the COLI provision ill-conceived and totally inappropriate.
“It would hurt the businesses and employees we serve and have a very negative impact on a substantial portion of the life insurance industry,” Plybon says.
“We expect to aggressively fight this proposal in conjunction with the life insurance industry and are optimistic that the House will never accept it,” he adds.
Ironically, Bingaman offered his amendment as a revenue offset for three provisions in the tax bill that are supported by ACLI.
These are repeal of Sections 809 and 815 of the tax code and the elimination of the current restrictions on consolidated tax returns filed by life insurers.
Keating blasts this linkage.
“We strongly support repeal of Sections 809 and 815 and consolidated return limitations,” he says. “However, new restrictions on the use of COLI is no way to pay for the necessary reforms of the tax code affecting life insurers.”
Keating says ACLI will fight to remove the COLI provisions from any tax legislation that moves through the Senate, and at the same time fight to repeal Sections 809, 815 and the consolidated return limitations.