When Congress returns to work on Sept. 6 after a recess, it will have a full plate of issues important to the life insurance industry to consider.
Indeed, the Senate is expected consider an issue of paramount importance to the insurance industry right off the bat as Senate Majority Leader William Frist, R-Tenn., has promised to put Democrats on the spot by asking the Senate to vote on legislation that would fully repeal the estate tax.
Besides estate tax repeal, issues of critical importance to the industry that are tucked into legislation expected to be considered this fall include reform of rules concerning defined benefit pension plans; retirement security, including changes in the Social Security program; and extension of tax cuts and extension of the Terrorism Risk Insurance Act that the life insurance industry wants revised to include support for group life insurance.
Moreover, insurance industry regulation is also on the agenda, with many anticipating that the House Financial Services Committee might consider federal standards legislation through the State Modernization and Regulatory Transparency Act. The life insurance industry is lobbying the panel to include in such legislation an optional federal charter for life insurers, but signs are emerging that because of its controversy and the lack of time, even introduction of the bill might be delayed until next year.
Data security, too, is an emerging issue. Kimberly Olson Dorgan, senior vice president of government relations for the American Council of Life Insurers, says the Senate Commerce Committee already has passed legislation dealing with data security. The Senate Finance Committee might take up such legislation as part of Social Security number privacy that is part of a privacy bill, Dorgan says, and the Senate Judiciary Committee might take it up at some point this year. The Senate Banking Committee might also consider the issue, she says. “Action might come in the Senate next year,” she concludes, and the issue “does concern insurers.”
The industry also supports adding group life to TRIA, which is must-do legislation this fall. Dorgan says, “I’m confident that group life will be included in any legislation extending TRIA. There is great momentum for doing this.”
Michael Kerley, senior vice president of the National Association of Insurance and Financial Advisors, says NAIFA supports this as well.
Regarding the estate tax, analysts and industry lobbyists say Frist doesn’t have the votes to force the Senate to consider the repeal measure. But life insurers and trade groups, including the ACLI, NAIFA and the Association for Advanced Life Underwriting, have all worked hard to ensure that members of the Senate know that repeal would hurt the industry and what the industry can support is reform, such as a moderate increase in the threshold level for the tax, and some decrease in the maximum tax on large estates, currently 45%. At present, the estate tax ceases in 2010 but returns in 2011 at rates and exclusion levels from 2000.
ACLI’s Dorgan says, “We do not support full repeal, but we do support sustainable reform. Congress needs to determine what it can afford in the long term.”
NAIFA’s Kerley agrees. “We support reasonable, sustainable reform,” Kerley says. “Budget implications and other considerations lead us to that conclusion as the better solution,” he adds. “We have been consistent on this for several years.”
In an Aug. 17 analysis of what will be on Congress’s plate when it returns to work, Washington Analysis, an analyst for buy-side brokerages, observed, “The expected Senate vote is good news for life insurers selling so-called ‘second-to-die’ policies.”
The vote is designed by the Republicans to put pressure on potentially vulnerable Sen. Max Baucus, D-Mont., ranking minority member of the Senate Finance Committee. But Baucus is said to be indicating privately that he sees no urgency in dealing with the issue–especially because of its potentially huge ongoing impact on the budget deficit–and is inclined to put action on the back burner.
The implication is that the insurance industry and its customers will have to deal with the uncertainty of this issue for perhaps several more years.
Regarding retirement security and pension reform, Congress will be dealing with these issues in two parts.
One piece of legislation, introduced as the Growing Real Ownership for Workers Act of 2005, HR 3304, or GROW, by Rep. Jim McCreary, R-La., chairman of the House Ways and Means Committee subcommittee that deals with Social Security, would create private accounts in Social Security by allowing workers to designate part of their contributions to the Social Security fund to go into private accounts. The chairman of the full committee, Rep. Bill Thomas, R-Calif., hopes to make this legislation more acceptable to Democrats by including sweeteners dealing with retirement security.
Legislation reforming the defined pension benefit system will also be considered.
Regarding retirement security, as part of Thomas’ effort to enlist the support of a wary insurance industry, he has asked the industry to devise a product that would provide inside buildup as an incentive for individuals to purchase long term care insurance. The insurance industry has done so and also has made other suggestions for retirement savings incentives that could be included in such legislation as a means of broadening its support in Congress.
“This is the biggest issue in the House,” says Dorgan. She believes the GROW bill and the retirement savings package will be introduced this fall by Thomas as separate bills and then combined. Regarding the LTC with inside buildup provision, Dorgan says the industry refers to it as a “hybrid product proposal.” She says ACLI members, as well as Thomas, are interested in LTC combination products. “We have been examining ways to develop such products–merge policies together, such as a long term care policy with an annuity, for example,” Dorgan says. “Of course, there are difficulties to this approach–policies are underwritten differently, and combining qualified long term care insurance with annuities is not currently permitted by the tax law–and these are being ironed out.”
Other provisions the insurance industry is asking the committee to support are tax incentives for people to purchase both qualified and nonqualified annuities. “So many individuals have put their savings into homes,” Dorgan says, and they count on the equity in their homes to finance their retirement. “But look at New Orleans,” she says. “In this case, the equity will be needed to put into rebuilding.
“Our products offer security to people as they retire,” Dorgan says. “So, we see the hurricane as another example of Congress needing to deal with the issue of providing more incentives for people to save for retirement. Americans need security. We all understand that Social Security is not enough. We need to have more than just Social Security to help through retirement.”
The product the industry is promoting would provide lifetime payments in retirement through a fixed annuity where 50% up to a $20,000 payment annually would be tax-free. Bills providing such a tax advantage have been introduced in both the House and the Senate.