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Life Health > Life Insurance

Treasury Gives Views On Pension Bill

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The U.S. Treasury Department Tuesday voiced support for enhancing the attractiveness of annuities by allowing a long term care rider to be attached to them.

Treasury would also support allowing insurance agents to offer investment advice to participants in 401(k) programs, said Mark Warshawsky, assistant secretary of the Treasury for economic policy, in comments before the D.C. Bar Association.

Warshawsky told the association the Bush administration strongly supports a permanent extension of the Economic Growth and Tax Relief Reconciliation Act of 2001′s annual contribution limits for IRAs and qualified defined contribution plans. Under current law, these provisions are due to sunset at the end of 2010.

All these provisions are contained in the House version of legislation that would reform defined benefit pensions. The life insurance industry, both underwriters and agents, strongly support inclusion of these provisions and others in the House version of the pension reform bill.

Interestingly, Warshawsky did not touch on a provision in the Senate bill long sought by the industry: best practices and codification of corporate-owned life insurance. The industry, especially the American Council of Life Insurers and the Association for Advanced Life Underwriting, is strongly lobbying for inclusion of this provision in the bill.

Negotiations to resolve the differences between the House and Senate bills are expected to get under way shortly. They were delayed because Republicans and Democrats in the Senate were unable to agree on allotment of seats on the Conference Committee.

That was resolved Friday, when the respective leaders agreed that there would be a 9-7 ratio of Republicans and Democrats on the committee. The House is expected to name its conferees this week, analysts say.

The negotiators are working against an April 17 deadline, when corporations have to make their Q1 payments to the Pension Benefit Guaranty Corp.

The LTC rider provision is not included in the Senate bill. In his comments Tuesday, Warshawsky said, the House pension bill would make the life care annuity “more marketable” in a couple of ways:

“First, it allows long term care insurance policies to be considered tax-qualified when purchased as a rider on an annuity,” he said. “This means that tax benefits given to certain long term care policies will not be denied to policies purchased in conjunction with an annuity.

“Second, because annuities and long term care policies are subject to different tax treatments, the investment in the annuity is reduced by the premium for the long term care policy, and charges against the annuity for long term care expenses are excluded from gross income.”

These provisions allow the 2 parts of the policy to be treated similar to stand-alone policies for income tax purposes, Warshawsky said.

The industry and Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, worked together to draft the LTC rider provision in the House bill, and it was included in the final House bill at the strong urging of Thomas.

While the Treasury Department is siding with the House on the investment advisor provision, this faces a tougher road because Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and a senior Democratic member, Sen. Jeff Bingaman, New Mexico, want a more moderate approach to allowing agents to provide investment advice.

Warshawsky also voiced support for provisions included in both the House and Senate bill providing for automatic enrollment of employees in 401(k) programs when they join a company. That is another provision the insurance industry wants included in the final bill.

“The Administration applauds these efforts and would like to see a conference report in which automatic enrollment provisions apply to all workers and escalator provisions are included and applied broadly to the worker population, but with a minimum of complexity,” Warshawsky said. “In return, we feel that there can be a reasonable reduction in the nondiscrimination safe harbor required matching contributions, a reasonable reduction in nonelective matching, and some increases in the vesting period, but less than the 2 years proposed in the House and Senate.”


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