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Industry Set To Make Its Case On COLI

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The life insurance industry will take its battle to preserve corporate-owned life insurance to the Senate Finance Committee this week and will support a new proposal by Sen. Kent Conrad, D-N.D., aimed at addressing what it sees as misperceptions about the product.

The Finance Committee will hold a formal hearing on COLI on Oct. 14, notes Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, which will give the life insurance industry an opportunity to set the record straight on COLI.

Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va., adds that the COLI language approved by the committee at an earlier sessionlanguage that was sponsored by Sen. Jeff Bingaman, D-N.M.would be devastating to the industry.

The entire industryAALU, ACLI and the National Association of Insurance and Financial Advisorsis united in opposition to the Bingaman amendment, Plybon notes.

The life insurance industry, according to Plybon, does not believe there are the kinds of abuses in the marketplace that Bingaman believes exist.

There is, he says, a substantial misperception.

The language drafted by Conrad, Plybon says, will address those misperceptions.

The controversy surrounds a pension bill approved by the committee in September which was amended to include a severe COLI provision.

This provision would tax the death benefits associated with any COLI policy that covers employees who die more than one year after leaving employment.

Originally, the effective date of the provision was Sept. 17, 2003. However, the committee later agreed to change the effective date to the date of enactment of the legislation.

In addition, the committee agreed to hold a hearing on COLI, which it had not done prior to approving the Bingaman amendment.

After the hearing, the committee will hold another vote on COLI, where the Conrad language will be considered.

Dolan says that during the hearing, the industry will point out the fact that notice to and consent of the employees covered by COLI policies is the operating norm in the life insurance business.

In addition, he says, the industry will emphasize that insurance products help companies provide benefits to their employees.

Moreover, Dolan says, the industry will stress the extent of state regulation of COLI that already exists.

“The hearing provides an opportunity for us to make our case in a public forum and not be blindsided by press reports that offer little opportunity for presenting the full range of facts about COLI,” Dolan says.

Plybon adds that the Conrad amendment will address the misperceptions surrounding COLI without devastating the market.

Specifically, he notes, the amendment will require the written consent of any employee covered by a COLI policy.

In addition, Plybon notes, the amendment will specify that hourly workers cannot be covered by a COLI policy.

This, he notes, will address concerns over so-called “janitors insurance,” even though this type of policy has not been written for at least 10 years.

The amendment would also define who is a key employee, he says.

Dolan adds that the amendment will also specify that COLI policies can only be used to fund employee and retiree benefits, and that employers can only buy enough insurance to cover anticipated liabilities.

Plybon says the life insurance industry supports the Conrad amendment because it essentially codifies best practices in the marketplace.

“We dont want to see abuses in the market,” he emphasizes.

In other news, the life insurance industry is strongly backing legislation introduced in the Senate that would allow those who provide services to pension plans to also offer investment advice to plan participants.

The legislation, S. 1698, was introduced by Sens. Mike Enzi, R-Wyo., Christopher Bond, R-Mo., Judd Gregg, R-N.H., and Rick Santorum, R-Pa.

Under the legislation, the insurance companies and other financial firms that provide services to pension plans could offer investment advice only if they fully disclose any fees and potential conflicts of interests to participants.

In a statement, Enzi says small businesses would benefit most from removing the current restrictions on investment advice services.

“Restricting investment advice services to independent advisors would force employers to look outside of their plans current administrative arrangement and hire another financial institution to provide investment advice services to its employees,” Enzi says.

He says this is hard for small employers, who face unique resource and personnel limitations.

“The cost of researching, selecting and paying for the services of an independent advice provider would deter small employers from providing this valued benefit to employees,” Enzi says.

ACLI President Frank Keating notes that the current restriction on investment advice dates back to the Employee Retirement Income Security Act of 1974, when defined benefit plans dominated the pension market.

That legislation, he says, was not drafted with the expectation that defined contribution plans would come to dominate market.

Similar legislation is pending in the House.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 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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