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Industry Hopeful On Pension Bill Breakthroughs

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Congress is working intensely to complete work by its Memorial Day recess on pension benefit reform legislation that contains a number of provisions eagerly sought by the life insurance industry because they will extend product offerings.

But industry lobbyists and congressional staffers say that while conferees made important progress in the week of May 15, final action is unlikely before mid-June or, at the worst, by the July 4 recess.

As to industry priorities, lobbyists and congressional staffers say there is a strong likelihood the final bill will include a provision allowing the addition of a long term care rider to annuities, which would be a huge victory for the industry.

On another critical front, it appears that a provision imposing a punitive tax on investor-owned life insurance (IOLI) faces long odds on being included.

But whether the LTC provision is included and the IOLI provision excluded remains “an open question until the deal is sealed and delivered,” as one lobbyist noted.

Also in contention, and a major sticking point between House and Senate negotiators, is allowing insurance companies and their agents to provide investment advice to beneficiaries of 401(k) programs.

However, Rep. John Boehner, R-Ohio, the House majority leader and a longtime proponent of the bill, said several weeks ago the provision would ultimately be included in the bill in “some form.”

On the positive side, sources said the final bill is likely to contain a provision codifying the tax treatment as well as best sales practices of corporate-owned life insurance.

Another provision being looked on favorably would make permanent increases in IRA and 401(k) contribution limits and catch-up provisions for those over 50 contained in a 2001 tax bill, the source said.

Other provisions sought by the industry–and also likely to be included–would provide an opt-out rather than an opt-in for 401(k) plans, automated default investments and automatic contribution increases.

At the same time, a strong effort is under way to persuade conferees to include two provisions dealing with flexible spending accounts in the final package.

One provision would allow employers to offer LTC insurance as a nontaxable benefit as part of a cafeteria plan or FSA, which would facilitate purchase of the hybrid LTC annuity by those in the cafeteria plan. The other would allow workers to roll over up to $500 annually in their FSAs.

Cost issues are critical factors in both cases, industry lobbyists say.

Additionally, industry lobbyists confirm that a vote on repeal of the estate tax in the Senate will not occur until Congress returns in June. And, then, the consensus is that repeal legislation lacks the vote for passage, and the time is not ripe for estate tax reform to be dealt with.

As to timing, Sen. Mike Enzi, R-Wyo., chairman of the conference committee that is reconciling differing versions of the bill, said May 17 that he believes conferees were “still on track” for producing a final pension conference report by the upcoming recess. “I am pleased with the progress [of negotiations on the pension conference package]. I would like to get it done by this weekend,” he said.

A spokesman for Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee and a key negotiator, also said May 17 that the conferees hope to complete work on a comprehensive and bipartisan bill by the recess.

But congressional staffers and industry lobbyists continue to voice caution as to whether work on the controversial, comprehensive and complex legislation can be completed before the recess, which begins May 26 at the latest.

For example, they cited Enzi’s acknowledgement that “everyone is reluctant to put their piece in the pot until they are sure everybody else has it in,” as buttressing the industry consensus that completing work on the bill by May 26 is unlikely.