Industry Pleased With Senate Panels COLI Legislation Draft

By

Washington

Industry representatives are praising a discussion draft on corporate-owned life insurance legislation that was released by the Senate Finance Committee.

“It is a good proposal,” says Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va. “It solves any perceived problems but allows COLI to go forward as a viable funding vehicle for employee benefits.”

Plybon also praises Senate Finance Committee Chairman Charles Grassley, R-Iowa, for announcing that he plans to markup, or formally consider, the proposal in the next few weeks.

Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, says the committees proposed reform is reasonable and ACLI can support it. He praises Grassley and the entire committee for taking a common sense approach to the issue.

Under the proposal, death benefits from COLI contracts will be taxable unless they meet certain new requirements.

Specifically, the benefits will not be taxable if the deceased individual was an employee within 12 months of death or if the death benefits are payable to the employees family, beneficiary, trust, estate or are used to purchase an equity interest in the employer such as under a buy-sell agreement.

In addition, the death benefits will not be taxable if the employee is a key person, which is defined as either a “highly compensated employee” under Section 414(q) of the tax code or a “highly compensated individual” under Section 105(h)(5) with a salary in the top 35% for the employer, or is a company director.

But in addition, the draft contains new notice and reporting requirement for employers.

Employers must provide employees with written notice of the insurance coverage, including that the coverage may continue after the insureds leave employment, and that the employer will be the beneficiary of any proceeds.

The employee must consent to the coverage in writing.

As for reporting, the draft requires employers to file statements with the Internal Revenue Service at the end of each year on the total number of employees, the number of employees covered by the COLI policy and the total amount of insurance in force.

The effective date of the draft generally would be the date of enactment, but there would be an exception for contracts issued after the date of enactment as part of an exchange for an earlier contract.

The Finance Committee is asking for comments on the draft to be submitted by Jan. 26, 2004.

In other news, health insurers plan to take an active role in working with the states and the National Association of Insurance Commissioners to achieve regulatory reform, says the president of AAHP-HIAA.

Karen Ignagni says uniformity and administrative efficiency are important factors in controlling the cost of health insurance. “If there is more uniformity at the state level and we are not seeing administrative costs increase without providing any value to consumers, it could go a long way to solving the problem.”

Ignagni spoke at a press briefing last week. AAHP-HIAA is the new association formed by the merger of the American Association of Health Plans and the Health Insurance Association of America.

As for whether the federal government should regulate the industry, Ignagni says AAHP-HIAA has a committee examining the issue, but she says the important thing is to streamline insurance regulation wherever it exists.

Turning to health care legislation, Ignagni says there appears to be a trend in states pulling back from enacting benefit mandates, and she hopes federal lawmakers will follow the states lead.

States, she says, are no longer looking at mandated benefits in a vacuum–they can see the impact mandates have on the ability of employers to purchase coverage.

AAHP-HIAA also plans to promote legislation aimed at reducing costs. For example, Ignagni says, AAHP-HIAA will continue to promote medical malpractice reform.

In addition, she says, the association will urge states that require external review of health plan coverage decisions to adopt evidentiary-based standards of review.

Ignagni says of the 43 states that mandate external review procedures, not one requires the review be evidence-based.

Finally, the Securities and Exchange Commission is proposing new mutual fund governance and disclosure requirements aimed at addressing recent scandals.

The SEC proposal calls for independent directors to constitute at least 75% of a funds board and that the chairman be independent.

In addition, the proposal establishes a code of ethics for investment advisors aimed at reinforcing their fiduciary obligation to their clients.

For example, investment advisors as well as certain supervised persons would have to report their personal securities holdings and transactions.

The proposal also seeks to upgrade fee disclosure. Broker-dealers would have to inform their customers about distribution-related costs that the customer would be expected to incur in connection with the transaction.

This includes separate disclosures about sales loads incurred at the time of purchase and the amount received by the broker-dealer, the estimated asset-based sales charges and service fees paid out of fund assets, and the maximum amount of deferred sales load that would be associated with the purchase if the shares are sold within one year.


Reproduced from National Underwriter Edition, January 16, 2004. Copyright 2004 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.