NU Online News Service, April 14, 2004, 6:01 p.m. EDT – The new Pension Funding Equity Act of 2004 provides relief for mutual insurers as well as for pension plan sponsors.[@@]
One section of the bill lowers funding costs for sponsors of defined benefit pension plans by temporarily replacing the very low 30-year Treasury bond rate with a much higher corporate bond rate index. The move cuts funding requirements by increasing the amount that employers can assume plan assets will earn over the course of employees’ careers.
Massachusetts Mutual Life Insurance Company, Springfield, Mass., points out that another section of the bill, H.R. 3108, repeals the Section 809 tax on mutual life insurers.
Congress enacted Section 809 of the Internal Revenue Code in 1984 to ensure that life insurers with stock company charters could compete with the mutual life insurers that then dominated the market, MassMutual says.
Since then, mutual insurers’ share of the U.S. life market has fallen to less than 10%, from 55%.
The Section 809 tax has forced mutual life insurers to do the equivalent of prepaying tax on income later distributed to policyholders in the form of dividends, MassMutual says.
“The permanent repeal of Section 809 eliminates an obsolete, harmful tax imposed only on mutual life insurance companies,” Kenneth Cole, a MassMutual senior vice president, says in a statement about the change.