Congressional negotiators were moving rapidly at press time to finalize pension benefit reform legislation language which would allow the insurance industry to offer a host of new products in the defined contribution area–including providing investment advice to plan participants.

While decisions were tentative and details scanty, underwriter and agent industry officials were privately prepared to call the legislation a strong positive for the industry.

Rep. John Boehner, R-Ohio, House majority leader and a negotiator on the pension bill, said July 20 that he hopes the bill can be on the desk of President Bush this week.

Other members of Congress said a more likely scenario is for the House to vote on the bill before it leaves for a month-long summer recess July 27, and for the Senate to finish work on the bill before it leaves on Aug. 4.

David Stertzer, CEO of the Association for Advanced Life Underwriting, Falls Church, Va., agreed, saying on July 20 that there appears to be “positive developments” in the efforts to complete the pension legislation, perhaps as soon as the beginning of August.

Officials at the National Association of Insurance and Financial Advisors, Falls Church, Va., voiced concern about the value to plan participants of the investment advice compromise being drafted by bill negotiators. But, in general, lobbyists said they expect all of the proposals sought by the industry to be included “in some form” in the final package, according to a consensus of the American Council of Life Insurers, Washington; AALU and NAIFA lobbyists.

These included language codifying the tax treatment of corporate-owned life insurance and establishing a best practices system for the product’s sale; extending the pension and retirement benefit enhancements contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); automatic enrollment in 401(k) plans; a provision allowing a long term care rider to annuities; and rollover of flexible spending account balances.

In another victory for the industry, negotiators apparently have decided not to include a provision in the pension reform bill or allied tax legislation that would have severely limited the sale of investor-owned life insurance (IOLI), or, as it is sometimes called, stranger-owned life insurance.

The reason the industry did not want the provision is that it was considered too broad and would go beyond just limiting what is considered inappropriate transactions, according to industry accounts.

That issue will be on the agenda for tax writers next year, lobbyists and staffers said.

But whether the cup could be declared half full or half empty depends on the success or failure of another effort by the Senate Republican leadership to dump an expensive estate tax reform proposal into the bill.

At press time, Sen. William Frist, R-Tenn., Senate majority leader, was trying to persuade bill negotiators to include in the bill language that would exempt the first $5 million of an individual’s estate and $10 million of a couple’s from taxation.

Under Frist’s plan, estates greater than $25 million would start to lose the exemption, and it would disappear for estates greater than $40 million, according to congressional staffers briefed on the plan. Estates would be taxed at graduated rates, starting at capital gains tax rates and increasing to 35%, they said.

Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, told reporters July 19 that negotiators “are getting some pressure from the leadership” to add an estate tax reduction to the final package, something he said should not be done.

“It is a gamble to put it in,” he said, warning of the difficulties of getting Senate approval. He said, “I think the whole conference is advising against it.”

The optimal insurance industry plan, as articulated by AALU, is $2.5 million exemption per person and a top tax rate of 45%.

Frist’s chances of getting the provision attached were rated low by most lobbyists and congressional staffers.

Michael Kerley, senior vice president, federal government relations, at NAIFA, voiced concern July 19 about the tentative compromise on a provision allowing agents to offer advice to defined contribution pension plan participants.

The proposed compromise would set different rules for those offering advice to 401(k) plan participants than for investors in individual retirement accounts, according to one lobbyist familiar with the talks.

Although final language still has not been worked out, the emerging compromise on investment advice will allow agents to give financial advice to 401(k) participants in plans administered by companies they work for–even if the firm’s own products are among those from which the employee can pick. At the same time, the emerging compromise would require the agents to provide the plan participant they are advising with an independent, computer-generated model.

The computer model either has to be an independent third-party model or a proprietary computer model validated by a third-party expert, the lobbyist said.

For IRA advice, the rules will be more liberal, “intended to not necessarily require a computer model requirement,” the lobbyist said. That’s because there is a more discreet set of options for 401(k) plans. “You know what the plan is; you know what the investment options are, so it is easier to invoke computer modeling,” the lobbyist said. With IRAs, “you have a huge variety of underlying investments that can be offered, so it is difficult to see how you can come up with a computer model for that,” the lobbyist said. “It is not quite clear what safeguards will be for those rules. It will allow advisors to provide investment advice even though the investments are with the same firm, but you will not need a computer model.” But the lobbyist said final language has not, as yet, been worked out.

Kerley voiced concern. “We are not pleased with this compromise,” he said. “We would have much preferred the language in the House bill, which we believe provides advisors with more flexibility.

“If it comes out of the conference as we are hearing, we have questions about the utility of the provision for rank-and-file employees,” Kerley said. “We will withhold judgment until we see the legislative language,” he added.