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Life Health > Life Insurance

Much Unfinished Business Faces Congress In The Coming Months

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Pension benefit reform legislation awaiting final congressional action contains provisions “particularly interesting” to the life insurance industry, according to an industry analyst, but enactment could be delayed until perhaps spring by the congressional calendar and the weight of ethics issues overhanging Congress.

Additionally, budget bills passed in different forms by both Houses of Congress late last year include a long term care partnership provision strongly supported by the life insurance industry. Final action on those bills is another congressional priority. Moreover, the fate of the estate tax continues to hover over Congress, although the votes to pass complete repeal appear to be lacking in the Senate.

Also hanging fire are bills to establish either federal standards for state insurance regulation, or, alternatively, to establish an optional federal charter, most likely, only for life insurance companies. But those are pieces of legislation that are having difficulty being born, in the face of strong opposition by the National Association of Insurance Commissioners and state legislators.

The Senate will not return to work until Jan. 18, and, according to legislative analysts, early meetings will be only pro forma because hearings into the nomination of Judge Samuel Alito to the Supreme Court will be the early focus. And the House is not scheduled to return until Jan. 30. Its return was delayed in order to give former Majority Leader Tom DeLay, R-Texas, an opportunity to clear himself in his home state of money laundering and other charges stemming from fund-raising efforts, according to political analysts.

Marc Cadin, vice president of legislative affairs for the Association for Advanced Life Underwriting, said last week that it is “an open question about when Congress will consider the estate tax” this year.

“It’s been all over the map,” Cadin said. “Action was supposed to take place first in the fall, then got delayed by Hurricane Katrina, and then was thought to be set for before they adjourned, but that didn’t happen.”

Going forward, he said, “the odds have to favor earlier consideration rather than later, particularly if they want to make a deal.” Still, Cadin said he couldn’t say with certainty that the votes are there to accomplish repeal, or even reform, the policy favored by the insurance industry.

On the pension bill, Cadin said he expects a conference to reconcile the different bills to start in mid- to late January. He said that some “prominent Hill staffers” have told him April 1 is a reasonable deadline, while others have said possibly earlier.

“That timing is speculative, though.” Cadin said, although it would be “reasonable” to expect passage in the first quarter, “if not in March, then in April.”

Colin Devine, an insurance analyst with Citigroup, talked about the House pension bill, H.R. 2830, in a late-December investment note.

He cited a provision encouraging employers to provide an annuitization option for their defined contribution retirement plans. Devine then said the bill “allows financial services companies that manage pension plans to provide investment advice to participants.

“This could represent a very large opportunity for insurers with large defined contribution record-keeping businesses such as Principal Financial, Prudential, Manulife, Nationwide Financial, American International Group and Lincoln National to be in a very favorable position to capture a material slice of the estimated $250 billion-plus annual IRA rollover market,” Devine said.

In his note, Devine also said that upcoming reconciliation talks of the recently passed House bill with similar legislation passed by the Senate in November is critical.

That’s because the Senate bill contains provisions also of benefit to the life insurance industry not contained in the House bill. Specifically, the Senate bill, S. 1783, contains a provision that would codify into federal law certain “best practices” for the sale of corporate-owned life insurance that represent a compromise supported by the industry, and for the establishment of a “DB(k),” which is essentially a hybrid pension that combines features from both traditional defined benefit as well as defined contribution 401(k) plans.

Insurance industry trade groups are also supportive of the industry provisions in the pension benefit bill.

American Council of Life Insurers President and CEO Frank Keating said the House bill “will help boost the retirement security of millions of American workers and retirees.”

Like Devine, Keating said the bill contains a variety of provisions of particular interest to life insurance industry policyholders and workers saving for retirement.

For example, Keating said, 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 said. This “hybrid” product provision also clarifies that life insurance can be used in combination with long term care insurance, Keating said.

Officials of the National Association of Insurance and Financial Advisors cited of particular importance in the House pension bill a provision that would allow companies that sponsor 401(k) plans on behalf of employers to make advice available to the employees participating in the plans by tapping into the expertise of agents of insurance company 401(k) plan providers.

Currently, NAIFA officials said, 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 is a giant step in the right direction,” said 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. Rep. John Boehner, R-Ohio, chair of the House Education and the Workforce Committee, realized “the time is now to change the rules to help provide the millions of Americans with 401(k) accounts to get much needed advice from those in the best position to offer it.”

David F. Woods, NAIFA’s CEO, hopes House leaders will be “firm” in negotiations with the Senate as the two houses meet to iron out differences in their pension reform bills.

Woods said the Senate’s version, the National Employee Savings and Trust Equity Guarantee (NESTEG) 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.”

“Any pension reform bill sent to President Bush that didn’t include the investment advice provision will put hard-working Americans in serious financial peril when they reach their retirement years,” Woods said.

Conversely, Woods hopes House leaders will accept the provision in the Senate version that clarifies rules governing the sale of COLI. Such a provision is not included in the House bill. COLI provides workers with valuable financial benefits, Woods said.

The LTC provision awaiting final congressional action is contained in a budget bill passed by the Senate in mid-December by a 51-50 vote and in the House by a 212-206 vote.

The National Association of Health Underwriters said the provisions in the different bills contain similar language.

The LTC provisions in the bills would eliminate barriers that prevent states from sponsoring LTC policies. Although four states currently offer such partnerships, federal law as it now stands makes it impossible to launch new ones.

Under the budget act’s partnership provision, an individual could purchase an LTC insurance policy approved by a state government. In return, the state would guarantee that should the policy benefits be exhausted, the government would cover the costs of continuing care through Medicaid. The senior would not be required to spend down all his or her assets first, as under current Medicaid rules.

For example, if a consumer buys an LTC partnership policy with $100,000 in benefits that are eventually exhausted, he or she then can protect an equal amount of assets, or $100,000, before using Medicaid.

In a statement following the Senate vote, the ACLI lauded Congress for advancing the legislation. “The long term care partnership provisions in the Deficit Reduction Bill of 2005 will go a long way toward providing consumers with the tools they need to protect their nest egg and plan for a secure retirement,” ACLI’s Keating said.

The following items of interest to the life insurance business were left unfinished by Congress before it adjourned.

In House bill, H.R. 2830

–A provision encouraging employers to provide an annuitization option for their defined contribution retirement plans.

–A provision to allow financial services companies that manage pension plans to provide investment advice to participants.

In Senate bill, S. 1783

–Codification of best practices for corporate-owned life insurance.

–The establishment of a DB(k).

In House bill, H.R. 3912

–Allows a long term care rider to be added to an annuity contract.

Other issues

–Estate tax repeal or reform.

–Expansion of long term care partnerships.


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