Industry Leaders Show Support For Senate Panels COLI Draft
The Senate Finance Committees draft language on corporate-owned life insurance unambiguously resolves concerns over notice and consent and coverage of rank-and-file employees, says the life insurance industry in a joint letter of support.
The letter was signed jointly by Frank Keating, president of the American Council of Life Insurers; Bob Plybon, president of the Association for Advanced Life Underwriting; and David F. Woods, CEO of the National Association of Insurance and Financial Advisors.
The letter came in response to a request for comments on the draft by the Finance Committee.
“The COLI draft includes a number of positive provisions that follow industry best practices concerning this critical employee benefit funding vehicle,” the letter says. “The concerns expressed in the media regarding employees being insured without adequate notice and consent are fully resolved by this COLI draft.”
The letter says the draft represents a “thoughtful compromise” relating to COLI concerns.
Specifically, the letter states, the draft includes a robust consent requirement under which all covered employees must receive advance written notice of coverage noting the fact that the coverage may continue after employment ends.
Moreover, the letter says, employees must give written consent prior to being insured.
The draft also prohibits employers from excluding from taxation income on death benefits for coverage on rank-and-file employees.
“While there are many appropriate situations under which an employer may have insured these employees, including using COLI policies to provide employee benefits to the same insured employees, the coverage for these employees has been the subject of considerable debate,” the letter says.
“The draft takes a conservative approach on this issue by essentially eliminating coverage for rank-and-file employees,” the letter notes.
A Finance Committee vote on the draft was scheduled for Jan. 28, but it has been postponed until the committee finishes work on a transportation bill.
In other news, the chairman of the Senate Special Committee on Aging says the nations tax laws should be reformed to make saving for retirement more tax-friendly.
“A recent report from the Department of Commerce shows that the personal saving rate has declined from 7.7% in 1992 to 2.3% in 2002,” says Sen. Larry E. Craig, R-Idaho. “At a time when savings should be going up, we see a dramatic decline.”
Craig spoke at a committee hearing on retirement savings and says he will work to remedy the situation.
“As an advocate for change, I encourage younger families to begin saving more now, and as a legislator, I recommit myself to working to reform the nations tax laws to encourage more savings,” he says.
John Goodman, president of the National Center for Policy Analysis, agrees.
“The current tax law has a bias against saving and investment,” he says in testimony before the committee. “That bias retards capital formation and reduces productivity, employment and wages.”
Goodman says that, in general, income spent on consumption is taxed once, while income that is saved is taxed as many as 4 times.
Currently, he adds, some 61% of all workers between ages 24 and 64 have no retirement savings accounts.
Among those who do have retirement savings accounts, the median balance is less than $25,000.
“To put that in perspective, $25,000 at retirement will provide a pension annuity of little more than $200 a month,” Goodman says.
One answer, he says, is to create a new type of 401(k) plan, which would have several features. First, he says, employers would automatically enroll all employees who meet the eligibility requirements unless the employees opt out.
Second, he says, the initial minimum contribution rate should be 4% to 6% unless the employee specifically opts for a smaller amount.
Third, Goodman says, employers would have to include in participants investment options premixed efficient portfoliosones that give the maximum rate of returns at different risk levelsor a professional directed investment option or both.
Companies, he adds, should be encouraged, but not required, to provide employees who choose to manage their own accounts with access to investment advice.
The new plans also would prohibit cashout by the plan or employee following termination of employment but before retirement, death or disability, Goodman says.
Instead, he explains, the account could be rolled over into a similar qualified plan or remain in the previous employers plan if the new employer does not have a qualified plan.
Goodman adds that to encourage employers to establish such plans, they should only have to meet the most basic coverage and nondiscrimination requirements.
In addition, he says, plan sponsors should receive legislative protection which exempts them from class-action civil suits and similar actions alleging breach of fiduciary standards.
“We would expect industry service providers to respond quickly to such a program,” Goodman says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 30, 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.