Industry Intends To Have Seat At Table As Items On Bush Agenda Surface
On notice that President Bush plans to use the “political capital” he earned in the last election to sustain tax cuts he secured in his first term and revamp Social Security, the life insurance industry isnt waiting until the new Congress starts work to ensure its products maintain their growth path.
At the same time, the industry has its own agenda, including regulatory modernization and the emerging issue of what official Washington, D.C., will do in reaction to disclosure of alleged wrongdoing in brokerage transactions.
Regarding the Presidents agenda, in a series of print and radio ads designed to reach Washington policymakers, the American Council of Life Insurers earlier this month began highlighting the importance “of long-term savings, financial and retirement security to Americans,” said Jack Dolan, a spokesman for ACLI.
Additionally, he said, they will show “the need for Congress and the administration to examine these issues and to highlight how life insurers play a vital role in the economy, in the retirement security of millions of Americans, and how we have expertise needed in the upcoming debate over retirement security.”
In a recent interview, Frank Keating, president and CEO of the ACLI, said the life industrys top priority is legislation either providing an optional federal charter or something along the lines of the SMART (State Modernization and Regulatory Transparency) Act drafted by the staff of the House Financial Services Committee this fall, but never formally introduced.
“State regulatory reform and modernization are the No. 1 issues to the life insurance companies the ACLI represents,” Keating said. “A large percentage of our board supports modernization.”
But frustration appears to be settling in over the flagging pace of modernization.
At a Consumer Federation of America conference Dec. 2, Gary Hughes, general counsel of the ACLI, said an OFC bill might have a better chance if it were targeted solely at life insurance, signaling a shift from the current policy that has the life and property/casualty industries moving in lockstep on the issue. “Our business is more suitable to a national regulator” than to state-by-state regulation, he said.
But Dolan, the ACLI spokesman, sought to dampen such speculation. “Some have raised the idea of a life-only bill, but it remains a hypothetical concept at this point. No legislation to this effect has been introduced, and we have not sought such a measure.”
Jim Edwards, a spokesman for the National Association of Insurance and Financial Advisors, said, “We stand behind the SMART Act because it addresses the concerns we have with the regulatory system [including licensing and speed to market issues] while relying on the best elements of the current state structure, for example, the regulators expertise and coordinated action through the NAIC.”
Regarding federal action stemming from the broker scandal, which may affect congressional action on modernization, Dolan said, “Its pretty clear that Congress is going to be continuing to examine state insurance regulation in the next Congress and we dont know where they might go. Our goal is to ensure that if there are any regulatory changes prompted by the various probes, they dont set us backward. We need uniformity in the laws and rules governing life insurance.”
In his comments, Keating said he is aware that the legislative agenda being laid out by Republicans is for more tax cuts, including a permanent repeal of the estate tax and for creating a private role for Social Security.
The industry also realizes the Republicans will be under pressure from their conservative allies to establish Lifetime Savings Accounts.
Keating said LSAs “are death to long-term savings and are terrible to Americas only long-term savings industry, and we will fight LSAs block by block and street by street.”
“Our work is cut out for us,” adds David Woods, CEO of NAIFA. “Given the greater Republican majorities in both the House and the Senate, and the fact that President Bush won an outright majority, support for the Presidents agenda, which includes LSAs and outright repeal of the estate tax, will be greater,” he said.
“We are concerned about LSAs,” Woods said. “It takes on a much greater likelihood of passage given the stronger Republican majorities,” he said, which “will embolden the Republicans to project the Presidents agenda with greater vigor.”
Regarding estate taxes, Woods said NAIFA supports increasing the threshold where estate taxes kick in but not outright repeal. Under present law, the threshold rises until the tax is eliminated in 2010, but then the threshold returns to the 2001 threshold level of $600,000 the year after.
The Association for Advanced Life Underwriting sees a large agenda for its members in the next Congress, with estate tax repeal at the top of its concerns. “AALU has serious questions about the sustainability of repeal and will continue to actively promote permanent, responsible estate tax reform that will eliminate the tax for more than 99% of Americans and provide certainty and lessen the burden for the remaining few,” said Gus Comiskey, AALU president.
AALU also will be promoting passage of legislation codifying rules dealing with sales of corporate-owned life insurance, legislation that passed the Senate Finance Committee in 2003, but died there, as well as insuring that the insurance industry has a voice in any revamping of the tax code and privatization of Social Security.
Regarding federal regulatory issues, Comiskey said enactment of nonqualified deferred compensation reform legislation in 2004 “imposed greater restrictions, but began the process of bringing the certainty needed for employers and employees to pursue plans to increase retirement savings.” He said AALU will remain “actively engaged” as Treasury and the IRS develop guidance for implementing the new provisions.
American Benefits Council President James Klein expects President Bush will urge Congress to enact sweeping reforms to Social Security. He also predicted that on both the health and retirement fronts, the President will advocate policies intended to empower individuals to play a more active role in their benefit security.
Anticipating that, the ACLI will come to the table demanding that life products be part of the mix the new program will allow. “We are going to be highlighting annuities during the upcoming debate on Social Security,” said Dolan. “On the issue of privatization, we are neutral, but if there is to be some sort of privatization, we believe that at least a portion of assets accumulated in a privatized account should go into a lifetime annuity.”
The ACLI ad campaign, Dolan said, “fits in with the spirit of the debate over privatization of Social Security.” Given its expertise on the subject, Dolan said ACLI will play a major role in the debate.
“We are the only industry with a product guaranteeing lifetime income, and we have been approached by many policymakers, research organizations and key players in the Social Security field,” he said. “It only makes sense. Weve been doing this for more than 200 years, providing people with income for life.”
The industry also was quick to voice support for legislation introduced in the Senate in early December by Sen. Gordon Smith, R-Ore., and Sen. Kent Conrad, D-N.D., that would reduce by half the tax on the income generated by annuities that make lifetime payments. (See NU, Dec. 13.) The legislation will be reintroduced in the Senate when the next Congress convenes in January.
A similar bill was introduced in the House much earlier in the legislative year by Rep. Nancy Johnson, R-Conn., and has a number of sponsors on both sides of the aisle, according to officials at the Americans for Secure Retirement trade group.
Under the proposal, individuals would not pay federal taxes on half of the income generated by annuities that make lifetime payments. There would be an annual limit of $20,000 on the amount an individual could exclude from federal taxes each year. For a typical American in the 25% tax bracket, this would provide an annual tax savings of up to $5,000, the trade group said.
Reproduced from National Underwriter Edition, December 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.