The fate of provisions severely curtailing the use of non-qualified deferred compensation packages is likely to remain up in the air for a while, insurance industry lobbyists are warning.

A lobbyist working on the issue who declined to be identified made that observation late last week as House and Senate tax writers continue to ping-pong differing versions of the minimum wage legislation through the legislative process.

The lobbyist offered the assessment as Democrats in the House prepared to vote on legislation authorizing supplemental appropriations to fund the Iraq war late last week.

“This is going to drag on for awhile, and the Senate seems to be winning because they have been successful in stopping the House from passing minimum wage legislation that contains only a bare minimum of tax provisions–with no mention of deferred compensation.”

The omnibus package, including the House version of minimum wage legislation that contained no further curtailment of deferred compensation packages, was expected to pass the House by March 23, although House Democrats were still searching for votes for their version of the bill at press time.

According to congressional estimates, the House tax cuts would cost the Treasury $1.3 billion in lost revenue over 10 years. The House added these tax cuts–and revenue raisers to cover this cost–several weeks ago under pressure from the Senate. But the House version did not contain provisions narrowing non-qualified deferred compensation packages.

By contrast, the version of minimum wage legislation passed by the Senate in January contained revenue raisers–including curtailment of non-qualified deferred comp packages–the Senate used to provide $8.3 billion in tax cuts over 10 years to small businesses.

Commenting on the presumed House action, David Stertzer, CEO of the Association for Advanced Life Underwriting, Falls Church, Va., said that the trade group continues to oppose the Senate NQDC package.

“Regardless of the vehicle to which it is attached, AALU opposes this deferred compensation provision because of the harmful impact it could have on the ability of employees and managers to save for retirement through non-qualified deferred compensation plans,” Stertzer added. “We continue to communicate this concern to legislators in concert with other concerned groups in the business community.”

For its part, Michael Kerley, senior vice president, federal government relations for the National Association of Insurance and Financial Advisers, Falls Church, Va., said the trade group “continues to appreciate the House position to exclude a hit on deferred compensation practices or any other insurance ‘pay for’ in connection with the small business tax incentives contained in the minimum wage bill.”

The House bill is a “contrast to the Senate bill, which proposes to enact devastating changes to the tax laws governing deferred compensation,” Kerley said. “However the legislative process on the minimum wage bill unfolds, NAIFA will continue to support leaving deferred compensation tax law changes, or any other changes impacting insurance, out of the legislative mix.”

Including the minimum wage legislation and its bare-bones tax package in the Iraq supplemental was designed to build momentum for the House version, another lobbyist explained.

Another provision in the bill includes $750 million to cover the short-term shortfall on the State Children’s Health Insurance Plan being faced by 14 states. Both the House and Senate are also working on bills reauthorizing the program, which expires this year.

But Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, chairman and ranking minority member, respectively, of the Senate Finance Committee, are insisting that the larger tax package be included, including the language on NQDC, the lobbyists said.

And, anticipating the House maneuver, Baucus and Grassley said on March 21 that they would seek to enlarge the tax package when the Iraq supplemental reaches the Senate. But they provided no details and did not indicate whether insurance industry tax issues would be involved in the large package.

According to several industry lobbyists, Baucus and Grassley are being joined in this effort to include a large tax package in the minimum wage bill by Sen. Trent Lott, R-Miss., who is the Senate minority whip.

Their primary goal is to send a message that multi-million compensation packages for corporate executives, especially to CEOs whose companies’ performance is lagging, is inappropriate, one industry lobbyist said.

But, “in our talks with Lott, we have been unable so far to de-link NQDC from excessive corporate compensation in his eyes,” the insurance lobbyist said.

The issue is at impasse because Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, is philosophically opposed, the lobbyist said. “Both Rangel and Jim McCrery, R-La., the ranking member of the Committee, are opposed to the NQDC provisions as a matter of policy,” the lobbyist said.

Specifically, the provisions capping deferred compensation at $1 million in the Senate bill would:

– Amend 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 the 20-percent additional tax under section 409A.

– Amend the section 162(m) (“million dollar deduction” limit) to treat any former employees and their beneficiaries as continuing to be covered by the section 162(m) limits in the future, in other words, after termination of employment.