The life insurance industry is voicing deep concern about provisions dealing with deferred compensation that were added to legislation raising the minimum wage that was reported out of the Senate Finance Committee last week.

“The Association for Advanced Life Underwriting is concerned about these provisions and is communicating its concern to Congress,” said Tom Korb, vice president for public and policy affairs. “We have also helped call attention to these issues among a variety of pension-sensitive stakeholders in Washington.”

The legislation was approved by voice vote Jan. 17 with little debate. The 2 provisions would sharply limit deferred compensation plans for executives.

They were included as revenue-raisers to pay for the small business tax incentives that the Senate plans to attach to the minimum wage bill, Korb said.

At the same time, other lobbyists and congressional staffers cautioned that Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, has said he does not want any tax provisions added to the House minimum wage bill, according to several industry officials.

Regarding the provisions, Korb said, “For public and private companies alike, one new provision would restrict the amount that can be deferred annually.”

It was designed to deal with public anger about huge pay packages, but Korb, speaking on behalf of insurance underwriters as well as agents, said that “while a few individuals would be permitted to defer as much as $1 million, the new rules would limit deferrals to far less than that for the vast bulk of individuals.”

The provision capping deferred compensation at $1 million is “administratively cumbersome,” Korb said, and violation of its technical terms could result in the immediate taxation of amounts that were legitimately deferred in past years.

“For public companies, in some circumstances, a second proposal would have the effect of limiting corporate deductions when compensation is paid out to executives after they retire,” Korb said, noting that both provisions would have a “significant” retroactive impact.

Korb said the deferred compensation limitation proposal would add new restrictions and complexity to a very extensive regulatory regime for deferred compensation that was enacted in 2004 with the addition of Internal Revenue Code Section 409A.

He told National Underwriter that the IRS and Treasury Department have been at work since that time, developing “hundreds of pages” of guidance to fully implement the new rules. The final regulations are expected to be released sometime during the first quarter of 2007.

Korb noted that just dealing with the new regulation “has been a daunting task” as businesses adapt their compensation planning practices to the new requirements.

Korb said it is AALU’s view “that the Section 409A rules enacted in 2004 should be given a chance to work without adding new restrictions to deferred compensation.”

“We are not aware of any reason to add new limitations,” he said. “Businesses and employees sorely need a measure of stability to do proper planning.”

The radical change in federal tax policy would impact top executives at hundreds of corporations and would raise taxes on some of the nation’s wealthiest employees by an estimated $806 million over 10 years, according to estimates provided to the panel by the Congressional Joint Tax Committee.

The provision was among several tax provisions designed to help small businesses deal with the 3-step increase in the minimum wage proposed last week in legislation that passed the House, and to pay for the cost of the tax cuts by closing corporate loopholes.

The entire package of shrinking corporate tax shelters and closing tax loopholes is projected to raise federal tax revenue by more than $8.3 billion over a decade, according to the Joint Tax Committee, covering most of the cost of the tax breaks the Senate panel is adding to the House minimum wage bill.