Lawmakers have introduced a bill in the U.S. House that would set new, federal standards for the sale of corporate-owned life insurance.[@@]
The bill, the “COLI Best Practices Act of 2005,” H.R. 2251, would limit the types of employees who could be covered by COLI policies and require the consent of those being insured.
H.R. 2251 was introduced by Rep. Thomas Reynolds, R-N.Y., and cosponsored by Rep. Earl Pomeroy, D-N.D., and 27 other members of the House Ways & Means Committee. More than half of the committee members have sponsored or cosponsored the bill.
The legislation would, among other things:
==Limit coverage for directors and “highly-compensated employees,” who are defined as individuals earning at least $90,000 annually or in the top 35% in terms of compensation.
==Require employers to obtain the informed consent of any employee before enrolling that employee in a COLI plan.
==Require employers to report information about their COLI plans to the Internal Revenue Service.
A similar COLI bill was passed by the Senate Finance Committee in February 2004, as part of a larger bill that was never signed into law.
The new bill has strong support from the American Council of Life Insurers, Washington; the Association for Advanced Life Underwriting, Falls Church, Va.; and the National Association of Insurance and Financial Advisors, Falls Church.
The bill draws heavily on recommendations that life insurance industry groups developed in response to fears that some members of Congress were moving to shut down sales of the highly profitable product.
Sale of COLI has been under fire for several years. Consumer groups and some members of Congress have complained about reports of large companies taking out blanket life insurance policies on their employees without notifying the employees or allowing the employees to share in the proceeds.
ACLI President Frank Keating is emphasizing that H.R. 2251 enjoys the same strong, bipartisan support that the 2004 Senate COLI bill enjoyed, and NAIFA Chief Executive David Woods and AALU President Roger Sutton also are giving H.R. 2251 good reviews.
“The legislation would ensure the continued viability of COLI as a business-planning tool,” Woods says.
In addition to looking out for employers and maintaining the viability of COLI, “the bill’s sponsors and cosponsors got it right in setting standards for employee consent,” Sutton says.