But provision in massive pension reform bill exacts a price
The life insurance industry’s ability to market a long term care product that features inside buildup cleared its first legislative hurdle last week–but at a price.
The House Ways and Means Committee passed, by 23-17, legislation enabling insurers to market a “combination insurance product” that allows annuities to include riders for LTC coverage.
The provision was included in H.R. 2830, the Pension Product Act of 2005. House action could come as early as this week.
But the price the industry unexpectedly paid for its victory was an added cost for the product through a decision by tax writers to treat the LTC component of the product as life insurance, raising the deferred acquisition cost to 7.7%, instead of the 1.75% DAC rate charged for an annuity product.
However, the bill does substantially increase the flexibility provided for customers of annuities.
While the insurance industry was generally supportive, and will likely lobby now just to get more favorable tax treatment for the new combo product, employers would only diplomatically state that the proposed reforms to the defined benefit pension plan system mandated under the bill constituted “a good first step.”
Other provisions sought by the insurance industry in the bill include incentives for employers to allow automatic enrollment of new employees in 401(k) plans and to allow employees access to professional investment advice.
Under the proposed legislation, fiduciary safeguards will be created to protect workers from potential conflicts of interest.
The legislation passed by the Ways and Means panel last week also extends to 2010 the annual contribution limits for IRAs and qualified pensions first enacted by Congress in 2001′s tax-cut legislation.
It also extends provisions in the 2001 law creating additional “catch-up” contributions for individuals 50 and older, as well as incentives created under the 2001 law for small employers to offer pension plans.
For health care insurers, one provision of the bill would allow employees to roll over each year up to $500 of unused funds in their flexible spending accounts. These unused funds can be put in another FSA or in a health savings account (HSA).