One highlight of the annual meeting of the Association for Advanced Life Underwriting is when members assemble to visit Capitol Hill and speak with senators, representatives and their staffs to advance positions of top concern to the organization.
Some 900 members conveyed this year’s action items, which included codification of the best industry practices on corporate-owned life insurance; reform of the estate tax; restrictions on investor-owned life insurance; and the implementation of AALU-supported guidelines respecting insurance producer disclosure, life insurance valuation and deferred compensation.
To achieve these objectives, AALU President-elect Roger Sutton also stressed the importance of strengthening the organization’s own political muscle.
“We have twin challenges before us,”
Sutton said during an interview with National Underwriter. “[They entail] successfully addressing several important issues per year while [building] on our political strength and industry unity.”
The AALU seeks to cap the lifetime estate tax exemption at $2.5 million and a 45% top rate. These levels would eliminate estate tax for 99.8% of Americans, according to the AALU. In 2003, when the exemption was $1 million, 30,522 of 2.5 million decedents (or approximately 1.2%) had estate tax liability.
The current law repeals the estate tax for one year in 2010. After that, the estate tax reverts to the pre-2001 level. The Joint Committee on Taxation estimates that making estate tax repeal permanent beyond 2010 would cost $289 billion from 2005 to 2015.
AALU President Gus Comiskey Jr. expressed optimism that Congress will ultimately favor reform over repeal. But he warned that a final bill could produce such a high exemption level (and/or low tax rate) as to make the cost of reform nearly as great as that of repeal.
“The AALU supports reasonable, sustainable and permanent estate tax reform and has vigorously educated key legislators on this issue,” said Comiskey. “Given the deficit and competing national priorities, permanent reform at a sustainable level is realistic, whereas the cost of repeal is so high that it likely could not be sustainable for the multi-decade periods during which families plan their estates.”
Comiskey said he also expects passage this year of legislation that would codify industry best practices on COLI. Approved earlier by the Senate Finance Committee, this COLI reform provision of the so-called NESTEG pension bill would bolster disclosure requirements about COLI on employees while retaining COLI’s role as an employee benefit and in business continuation planning.
Comiskey said the AALU is providing input to the IRS to help shape guidelines on new tax rules that Congress passed as part of the American Jobs Creation of 2004 bearing on nonqualified deferred compensation plans. To apprise its members of the rules’ implications for such plans, the AALU is providing analysis through its Washington Report bulletins and through an interactive Hot Topic “teleseminar” featuring representatives of the U.S. Department of Treasury’s Office of Tax Policy.
The AALU’s tax guidance recently bore fruit in the recently published Rev. Proc. 2005-25. The ruling substantially revised the IRS’ proposed Safe Harbor valuation approach with a variation of a formula suggested by the AALU. Comiskey cautioned that additional “testing” of 2005-25 is needed to determine whether the rule will usefully address the original proposal’s failure to adequately reflect the surrender costs of insurance policies.
Comiskey also counted among the AALU’s successes lobbying efforts it executed in concert with the National Association of Insurance and Financial Advisors and the American Council of Life Insurers that defeated legislation in several states to relax insurable interest laws. If enacted, the various bills would have permitted investor-owned life insurance in states where it is not now legal to market. IOLI allows private investors to use a charity’s rights under insurance laws to purchase life insurance on a third party.
The insurance industry’s stand on IOLI prompted the Bush administration this year to propose a 25% excise tax on IOLI death benefit proceeds. Comiskey said “it appears likely” that Congress will address the proposal this year. [Note: The Senate Finance Committee leadership introduced a bill dealing with IOLI. See story on page 6.]
Sutton emphasized that maintaining positive momentum on its legislative agenda will require the AALU to continue to pool its efforts with NAIFA, ACLI and AALU’s Issues Alliance Partners (which includes several insurance companies).
Campbell Gerrish, a facilitator for the AALU’s Strategic Planning Committee, noted during a general session that the organization had 2,014 members at the conclusion of the 2003-2004 fiscal year. Of that number, about a third are politically active; 61% are between the ages of 45 and 64; 48% live on the East Coast; and most are white males.
The committee’s vision for 2008, said Gerrish, includes 1,500 politically active, and more demographically diverse, members, each belonging to the AALU’s Capital Hill Club. The committee additionally aims to boost its lobbying war chest to $6.5 million, up from $3 million currently, and to build a “dream team” of lobbyists and communications specialists to interface with elected officials and media.
AALU President Gus Comiskey Jr. expects passage this year of legislation that would codify industry best practices on corporate-owned life insurance.