The Senate Finance Committee today approved with little debate a proposal that would sharply limit executive deferred compensation plans.

Insurance industry groups are saying the non-qualified deferred comp, which has been added to the Senate’s minimum wage bill, could have a big effect on the tax-deferred compensation packages that life insurance underwriters and life insurance agents sell.

The House passed its minimum wage bill, H.R. 2, last week.

Over in the House, Rep. Charles Rangel, D-N.Y., has said he does not want to see colleagues add tax provisions to the minimum wage bill.

Members of the Senate Finance Committee do want to add tax breaks, and they have been looking for ways to offset the cost of the tax breaks.

The non-qualified deferred comp amendment would:

- Change Internal Revenue Code Section 409A to impose a dollar cap on the annual accrual of “nonqualified deferred compensation that is the lesser of $1 million or the individual’s average annual compensation determined over 5 years.”

Failure to satisfy the cap would trigger ordinary income tax plus a 20% additional tax.

- Change the Section 162(m) (“million dollar deduction” limit) to treat any former employees (and beneficiaries) as continuing to be covered by the Section 162(m) limit in the future. The change would apply the Section 162(m) limit to executives who left their current employers.

The proposed change in federal tax policy would affect top executives at hundreds of corporations and would raise taxes on some of the nation’s wealthiest workers by about $806 million over 10 years, according to the Congressional Joint Tax Committee.

The proposed non-qualified deferred comp change is included in a package of tax shelter and tax loophole changes that could raise federal tax revenue by about $8.3 billion over a decade, according to the Joint Tax Committee.