NU Online News Service, Oct. 25, 2004, 3:44 p.m. EDT
The head of the American Council of Life Insurers, Washington, praised Congress and the White House for a new law that could benefit many life insurance companies.[@@]
Frank Keating, president and chief executive officer of the ACLI, says the recently enacted American Jobs Creation Act of 2004, H.R. 4520, includes 2 provisions benefiting life insurers. One suspends for 2 years a part of the tax code that affects stock companies only. The other gives statutory protection to a common form of deferred compensation.
The suspension of Section 815 of the tax code, which begins next January, removes a major tax burden on publicly held life companies, ACLI says. The section compelled them to keep a bookkeeping policyholder surplus account equal to half of the underwriting income received between 1959 and 1984. Taxes on these PSAs would be triggered upon certain necessary restructuring events or the dissolution of a company.
The law was designed to help balance the taxes paid by the publicly held and mutual segments of the industry. At the time the law was passed in 1959, mutual life insurers managed most of the industry’s assets. Now they manage only about 10% of those assets, ACLI says.
The other provision of the bill affecting life insurers effectively gives legal sanction to so-called “rabbi trusts.” A rabbi trust is a deferred compensation plan that uses life insurance is the funding vehicle.
“In the wake of the scandals at Enron and certain other corporations, it was important for Congress to be very clear about appropriate forms of deferred compensation,” says Keating. “Rabbi trusts are fully above board.”