The life insurance industry last week edged closer to its goal of having tax provisions that would have limited non-qualified deferred compensation packages stripped from pending legislation.

The provision was included in the Senate version of legislation raising the minimum wage that had been tucked into another piece of legislation providing supplemental appropriations for the wars in Iraq and Afghanistan.

But it was stripped from the bill on April 23 by conferees seeking to reconcile different bills passed by the House and the Senate.

The new bill, H.R. 1591, the U.S. Troops Readiness, Veterans’ Health, and Iraq Accountability Act of 2007, was scheduled to be voted on by the House and Senate late last week.

However, congressional staffers, industry lobbyists and members of Congress cautioned that the tax provisions dealing with non-qualified deferred compensation plans could potentially be reinserted in follow-up legislation.

That’s because President Bush has vowed to veto the current version of the bill, which contains a timetable for withdrawal from Iraq he opposes.

That could open up, sources said, any number of possibilities for the provisions to be reinserted because senators on both sides of the aisle support a greater tax package in legislation raising the minimum wage than do tax-writers in the House, and no one is certain how the issue will ultimately be resolved.

The National Association of Insurance and Financial Advisors lauded the decision of conferees to remove the provision on April 23, clearing the way for floor action in both houses of Congress.

But Michael, Kerley, senior vice president, federal government relations, for NAIFA, cautioned, “We know there is a continuing interest in Congress in developing sound public policy relating to deferred compensation, so this is not likely the end of the story.

“But, for now it’s the best outcome possible,” he said.

Marc Cadin, vice president, legislative affairs, at the Association for Advanced Life Underwriting, added, “The educational efforts of AALU and the broad coalition of business groups concerned about the NQDC provision originally passed by the Finance Committee as part of the minimum wage legislation were validated last week when it was not included in the package that was announced.”

Cadin said AALU “strongly opposed” this provision because of its negative impact on this marketplace as well as its broader impact on savings.

“While the supplemental spending bill winds its way through the legislative process, we will continue to stress to leaders in both parties and in both houses of Congress to let the NQDC marketplace settle, particularly in light of the fact that many businesses are busy working to bring their plans into compliance with the recently finalized 409A regulations,” he said.

The deferred compensation provisions, contained in a tax bill/minimum wage package passed by the Senate in February, would cap deferred compensation packages at $1 million annually.

Specifically, the provisions would:

o 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% additional tax under section 409A.

o Amend 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.

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