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Final Pension Bill Gets Mixed Reviews

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Life and health groups are celebrating the passage of some sections of H.R. 4 but hoping Congress will salvage a flexible spending account rollover provision that failed to make the final cut.

The House passed the pension bill July 28 and the Senate passed the bill Thursday. President Bush says he intends to sign the bill quickly.

The authors of the bill wrote it primarily to improve the finances of defined benefit pension plans and the Pension Benefit Guaranty Corp.

Life insurers that sell the group annuities backing many defined benefit plans have a huge stake in the welfare of the traditional pension system.

But at life groups, H.R. 4 sections that will impose new marketing rules on sellers of corporate-owned life insurance and encourage 401(k) plan sponsors to provide individualized advice seem to be getting more attention.

The COLI provision will require employers to get rank-and-file employees’ consent before insuring those employees’ lives, and it will discourage employers from applying COLI to employees who are not highly compensated employees.

The “COLI ‘best practices’ provision had the support of a broad, bipartisan majority of both Senate and House tax-writing committees,” says Frank Keating, president of the American Council of Life Insurers, Washington, a group that has spent years working on the COLI issue.

The Association for Advanced Life Underwriting, Falls Church, Va., also supported the COLI provision and other H.R. 4 provisions, and it has opposed H.R. 5970, the trifecta bill, which includes the kind of estate tax reduction measure that the AALU has opposed.

Shortly before the Senate passed H.R. 4, supporters of H.R. 5970 tried and failed to get 60 votes to protect H.R. 5970 from a filibuster. The vote on the cloture motion kept the bill from coming up for a vote in the Senate.

“The results of both votes were proof positive that robust political involvement and collaborative advocacy efforts can and do make a difference in Washington,” says AALU Chief Executive David Stertzer.

David Woods, NAIFA’s chief executive, is welcoming passage of H.R. 4 sections that deal with efforts to offer financial advice to 401(k) plan members.

The provision would encourage 401(k) providers to help workers with investment decisions by having agents meet with plan participants face-to-face or by offering an approved computer software program. Prohibited transaction rules associated with the Employee Retirement Income Security Act now make it difficult for plan providers and agents to give retirement plan members personalized advice.

Enactment of the investment advice provision “would dramatically improve the chances that much-needed investment advice for participants of employer-sponsored 401(k) retirement plans will be made available,” Woods says.

“Studies show us that there are as many as 20 million workers with 401(k) accounts who don’t get the advice they need to make informed investment decisions about their retirements,” Woods says. “And they need help because the choices aren’t easy.”

In addition to the COLI and investment advice sections, insurers are looking at sections of H.R. 4 dealing – or not dealing – with matters such as long term care insurance and FSA rollovers.

Janet Trautwein, executive vice president of the National Association of Health Underwriters, Arlington, Va., says she is disappointed about the exclusion of provision that would let workers to roll over up to $500 in unused FSA assets each year.

Under current use-it-or-lose rules, money left in the FSA at the end of the year is forfeited to the employer. “Allowing for a minimal rollover re-funds the account for the following year, providing peace of mind if one becomes sick early in the year,” Trautwein says.

NAHU hopes the next Congress will take another look at the FSA rollover issue and let workers use employer cafeteria plans to buy long term care insurance, Trautwein says.


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