Pension reform legislation passed by the House last week contains provisions potentially very beneficial to the industry, experts say.[@@]
In a note to investors, Colin Devine, a life insurance industry analyst, says issues in Congress critical to the life insurance industry include proposals to create an optional federal charter for life insurance companies and repeal of the estate tax.
The pension benefit bill passed by the House last week (H.R. 2830) includes a provision encouraging employers to provide an annuitization option for their defined contribution retirement plans. Devine notes the bill also “allows financial services companies that manage pension plans to provide investment advice to participants.”
This could represent a huge opportunity for insurers with large defined contribution record-keeping businesses to capture a major slice of the estimated $250 billion-plus annual IRA rollover market, Devine says. He notes such companies include Principal Financial, Prudential Financial, Manulife Financial, Nationwide Financial, American International Group and Lincoln National.
The analyst also says upcoming Congressional talks to reconcile the House bill with similar legislation passed by the Senate in November is critical. That’s because the Senate bill contains provisions of benefit to the life insurance industry not contained in the House bill.
Specifically, the Senate bill (S.1783) includes a requirement supported by the industry that would codify certain practices for the sale of corporate owned life insurance. It would also establish a DB(k), which is a hybrid pension plan that would combine features from both traditional defined benefit plans and defined contribution plans, such as 401(k)s.
Talks are likely to get underway in January, Devine said.
Officials of the American Council of Life Insurers and the National Association of Insurance Agents and Financial Advisors also praised the House action.
ACLI president and chief executive Frank Keating lauded the House “for passing pension reform legislation that will help boost the retirement security of millions of American workers and retirees.”
Keating notes the measure includes the long term care combination bill language found in H.R. 3912, the Flexible Retirement Security for Life Act of 2005.
“This makes acquiring private long term care insurance easier by allowing a long term care insurance rider to be added to an annuity contract,” Keating says.
This provision also clarifies that life insurance can be combined with long term care insurance, Keating said.
NAIFA says a particularly important provision would allow companies that sponsor 401(k) plans to make advice available to employees participating in the plans by tapping into the expertise of agents of insurance company providing 401(k)s.
Currently, the Employee Retirement Income Security Act’s prohibited-transaction rules make it difficult for agents to provide that advice.
“The action taken by the House today is a giant step in the right direction,” proclaims NAIFA president David E. Smithkey. “Study after study shows that Americans aren’t getting the advice they need to make informed investment decisions about their retirements, including 401(k) participants.”
David F. Woods, NAIFA’s chief executive officer, hopes House leaders will be “firm” in negotiations with the Senate.
Woods says the Senate’s version of the legislation, the National Employee Savings and Trust Equity Guarantee Act of 2005, “does nothing to address the barrier imposed by ERISA rules and, as a consequence, would do little to increase the availability of investment advice to 401(k) beneficiaries.”
Conversely, Woods hopes House leaders will accept the provision in the Senate version that clarifies rules governing the sale of corporate-owned life insurance.