Life insurance trade groups say they will oppose enactment of proposals in the Bush administration’s 2007 budget document unveiled Feb. 6 that would create certain new forms of tax-free accounts.

The National Association of Insurance and Financial Advisors said, in reiterating its opposition to the proposals, one of the concerns is that if they are adopted, support would be unavailable for sustaining provisions in the tax law that underlie products the industry now sells or would like to sell.

“There is a competition for tax provisions that shelter retirement income,” said Michael Kerley, senior vice president, federal relations, for NAIFA. “Adoption of the proposals in the president’s budget would crowd out the tax benefits of products we sell.”

One of the insurance industry’s priorities is to win support in an upcoming conference of proposals in differing pension benefit reform bills the industry supports.

Kerley said the Senate version contains provisions codifying tax deductions for corporate-owned life insurance and establishing certain best practices for its sales that the industry considers a priority.

The House version of the bill contains a provision allowing insurance agents to provide advice to employees of companies about the most appropriate way to invest their 401(k) money, which the industry also strongly supports.

The pension reform provisions in the bill are important but have many advocates, Kerley said. “But the COLI provision and the investment advice provision will not be included without our efforts, and those of the American Council of Life Insurers and the Association for Advanced Life Underwriting,” he said.

The Bush budget document also calls for outright repeal of the estate tax, something the industry consistently has opposed.

At the same time, the ACLI said it would support initiatives in the budget document that would make permanent those parts of the tax code that temporarily increase the amount workers can save in tax-qualified retirement savings plans.

The proposals the industry opposes ask Congress to create Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs) and Employee Retirement Savings Accounts (ERSAs). Efforts by the administration in prior budgets to create these accounts have been rebuffed by Congress.

The ACLI said those accounts “would discourage long-term savings and pension plan maintenance and creation.”

In a statement, Frank Keating, president and CEO of the ACLI, said the industry will oppose creation of these programs because “they do not represent wise ways to address our nation’s retirement security crisis.”

Keating added, “As the review of retirement security issues commences in Congress this year, ACLI will advocate for policies that encourage people to save as much as possible in their employer-provided plans and encourage people to lock in to a lifetime stream of income that only an annuity can provide.”

LSAs would provide tax-free savings, but the industry opposes their creation because it allows easy access to funds saved in such accounts. These accounts “would effectively discourage long-term savings,” the industry argues, because there would be no restraints on access to funds in LSAs.

Kerley said LSAs “are hugely competitive” with annuities and life insurance policies. LSAs allow people to invest up to $5,000 a year, regardless of age or income. There are no age standards or income limits, and they would allow tax-advantaged inside buildup. It would also let an LSA owner to withdraw the money without penalty at any time for any purpose.

“So, what that amounts to is better treatment than life insurance or annuities get under federal tax law,” Kerley said. “We view these as a threat to life insurance and annuities and therefore, a threat to long-term individual and family security.”

RSAs would consolidate various types of currently available savings vehicles, but Keating said the industry opposed them because they “could actually lead to less savings opportunities for working Americans.”

That is because small business owners in particular would have less incentive to sponsor a workplace savings plan if they could save individually through an RSA, Keating said.

“Meanwhile, the ERSA proposal reflects a lack of recognition of the real and important differences among various types of employer-provided retirement savings arrangements,” Keating said.

“By consolidating all types of plans into one, ERSAs would discourage many employers from sponsoring plans for their employers,” Keating said. “The U.S. has a diverse economy, and a one-size-fits-all approach does not provide the flexibility employers need to offer the type of savings plans that make the most sense for their workers.”

Specifically, Keating said, the ERSA proposal would threaten the plans offered to public school teachers, state and local government workers, and employees of charitable organizations.

Kerley said the ERSA proposal combines various types of plans–401(k)s, government 457 plans, 403(b) annuities–into one type of 401(k) plan.

“Since these plans have been proposed, our members tell us that if you eliminate 403(b) annuities, you are tinkering with a program that is very popular and useful to teachers, hospital workers–mostly people in the helping professions.

“We find in talking to our members that the so-called ‘government 457′ plans are tailor-made for county and municipal employees–for those who work in not particularly affluent areas–and if you tinker with those, we’re afraid that, once again, a lot of people will go without retirement savings,” Kerley said.