Last-Minute Turmoil Over Pension Bill

Legislation reforming the defined benefit pension system that will, among other things, allow the insurance industry to offer an array of new products in the defined contribution business hung in the balance at press time Thursday–with some Republicans insisting that Congress tie expiring tax breaks that are extended in the pension bill with estate tax reform. (See related story titled, “Estate Tax Skirmishing.”)

Before the impasse developed, members of a conference committee seeking to reconcile differing House and Senate bills had painstakingly crafted legislation over many months that would allow insurance agents who are employed by an employer’s 401(k) plan provider to give investment advice to plan members.

If the impasse is broken, the plan is for the House to take up the bill before departing for a month-long recess July 27. The plan was for the Senate to take up the bill before leaving Aug. 4.

Michael Kerley, senior vice president, federal government relations, at the National Association of Insurance and Financial Advisors, said before the impasse developed that “in general, this is a good package.”

He cautioned his comments were based on the fact that, in the end, the legislation would not contain “an estate tax component that is a budget buster and is not sustainable, given the realities of the huge budget deficit.”

“This can be a torturous process, but it is how laws are made in this country,” said Jack Dolan, a spokesman for the American Council of Life Insurers. “We are waiting for word and hoping that it is that the conference has concluded and pension reform will pass,” Dolan said.

The industry also won the right through the legislation to offer hybrid annuities containing long term care riders.

Another provision strongly supported by the industry and apparently contained in the tentative compromise bill codifies the tax treatment of corporate-owned life insurance. The provision would also codify best practices now used as the industry model for sale of these instruments.

The tentative compromise bill would also make permanent the pension and retirement benefit enhancements contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 and allow for automatic enrollment of new employees in 401(k) plans. This provision contrasts with current practice, which requires employees to sign on to 401(k) plans.

“The extension of the EGGTRA provisions is very positive for future retirees,” Kerley said.

In another victory for the industry, the final bill also omits a provision contained in the Senate version of the legislation that would severely limit the sale of investor-owned life insurance (IOLI) or, as it is sometimes called, stranger-owned life insurance. That issue will be on the agenda for tax writers next year, lobbyists and staffers said.

But the industry apparently did not win support for a provision allowing workers to roll over from year to year unused amounts contained in Flexible Spending Arrangements.