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Treasury Voices Support For LTC Annuity Rider

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The Treasury Department has expressed support for allowing a long term care rider to be added to annuities.

In comments before the D.C. Bar Association on March 7, Mark Warshawsky, assistant secretary of the Treasury for economic policy, also said the department would support allowing insurance agents to offer investment advice to participants in 401(k) programs.

In his comments, Warshawsky said the administration strongly supports a permanent extension of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) 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 of these provisions are contained in the House version of legislation reforming the defined benefit pension. The life insurance industry, both underwriters and agents, strongly supports and lobbied heavily for 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, Washington, and the Association for Advanced Life Underwriting, Falls Church, Va., 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. The negotiators are working against an April 17 deadline, the date when corporations have to make their first quarter payments to the Pension Benefit Guaranty Corp.

The LTC rider provision is not included in the Senate bill. In his comments, Warshawsky said “the House pension bill takes a couple of steps to make the life care annuity more marketable.

“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.

“This allows the two parts of the policy to be treated, for income tax purposes, similar to stand-alone policies,” 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, the issue faces a tougher road because Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and a senior member, Sen. Jeff Bingaman, D-N.M., want a more moderate approach to allowing agents to provide investment advice.

Warshawsky’s comments also voiced support for provisions included in both the House and Senate bills providing for automatic enrollment of employees in 401(k) programs when they join a company, 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 two years proposed in the House and Senate.”


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