More comprehensive data could be useful to Congress in assessing the potential effects of legislative proposals relating to corporate-owned life insurance, says the United States General Accounting Office.
Currently, GAO says in a report released last week, limited data are available on the prevalence and use of COLI. Data would be most useful if reported separately for business continuation and broad-based policies because legislative proposals generally have treated these policies differently, GAO says.
Data on the amount of tax-free income that businesses received from death benefits could help explain the potential effect of changes to the tax treatment of policies on tax revenues, GAO adds.
However, GAO says, should Congress decide this data is useful, it should still make a determination of whether the costs of acquiring the information outweigh the benefits of doing so.
GAO notes that federal bank regulators have reviewed the holdings of financial institutions that have significant amounts of COLI and concluded that no major supervisory concerns exist.
The issue of COLI use emerged when the Senate Finance Committee considered rewriting the COLI tax rules earlier this year. During a committee hearing, GAO testified that insurance companies either did not maintain data on COLI use or if they did, did not maintain it in a form that was useful for an analysis.
Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, says GAO has produced a good report on COLI, and ACLI hopes this is the final step before enactment of the Grassley-Conrad language on COLI.
The Grassley-Conrad languagenamed for its primary sponsors, Sens. Charles Grassley, R-Iowa., and Kent Conrad, D-N.D.is aimed at eliminating alleged abuses involving broad-based COLI policies, sometimes termed derisively as janitors insurance.
Under that language, death benefits from COLI policies 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.
In addition, the death benefits will not be taxable if the beneficiary is a key employee, a highly compensated employee or a company director.
The language also requires employers to obtain the written consent of employees before purchasing coverage for them, and to notify employees in writing that the coverage may continue after they leave employment and that the employer will be the beneficiary.
The language requires employers to file annual statements with the Internal Revenue Service disclosing the total number of employees, the number of employees covered by COLI policies and the total amount of insurance in force.
Dolan says it is significant that neither GAO nor any federal agencies are recommending that any further requirements be applied to COLI.
Reproduced from National Underwriter Edition, May 21, 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.