Leaders of 2 Senate committees have reached an agreement that paves the way for passage of a defined benefit pension bill that includes a section on corporate-owned life insurance.[@@]
Sens. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Sen. Max Baucus, D-Mont., the most senior Democrat on the Finance Committee, ironed out differences between a bill approved by their committee and a similar bill approved by the Senate Health, Education, Labor and Pensions Committee.
Sen. Mike Enzi, R-Wyo., chairman of the Health Committee, and Sen. Edward Kennedy, D-Mass., the most senior Democrat on that committee, represented the Health Committee.
The compromise bill, the Pension Security and Transparency Act, will now move to the full Senate, which is expected to vote on the measure in the next 2 weeks.
Tim VandenBerg of Washington Analysis, Washington, says the Senate agreement “sets the stage for Senate passage” as early as this week.
The House also wants to pass a pension bill, and that means the bill could be approved by early 2006, VandenBerg says.
Under the Senate bill, most companies with underfunded pension plans will have to bring their plans to full solvency in 7 years, but airlines are allowed 14 years.
The bill also changes the rules that pension plan sponsors the low bond ratings must follow when calculating pension plan values. The changes are designed to make shortfalls more apparent, and companies operating under these “at risk” rules would still be required to bring their pension plans into solvency within 7 years, according to the bill text
The bill also includes provisions offering guidance on the use of corporate-owned life insurance, which is also known as COLI.
The COLI provision would exempt COLI policy benefits from federal income taxes if the covered employee is a director or a highly paid employee, or if covered employees are notified in writing about the purchase of the contract.
Some media reports have referred to COLI as “janitor’s insurance” and suggesting that employers are profiting from the deaths of current and former employees.
Life insurers and business groups have defended COLI, noting that COLI benefits are usually used to fund a company’s pension plan or other benefit plans.
“We are pleased that a provision to codify the industry’s best practices relating to the use of corporate owned life insurance is included within the pension bill agreement,” says David Stertzer, executive vice president of the Association for Advanced Life Underwriting, Falls Church, Va. “Corporate owned life insurance plays a vital role in protecting businesses and helping them provide employee benefits, and this provision ensures that the product is used responsibly for the benefit of businesses, employees and families.”
Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, says the language in the Senate bill will help to improve COLI’s image.
“The COLI provisions in the Senate pension bill will reform the COLI market and ensure the product remains available to businesses for long-term planning purposes, such as paying employee benefits,” Dolan says. “We are looking forward to the provisions becoming law.”