A Senate hearing Sept. 5 on whether there should be a designation for selling annuities to seniors ensures there will be a fast start by Congress this fall in dealing with a full plate of issues affecting the life insurance industry.
This agenda includes a likely early hearing on legislation proposed by Rep. George Miller, D-Cal., chairman of the House Education and Labor Committee, requiring increased disclosure of fees charged 401(k) plan participants, followed by a vote on the House floor expected Sept. 11 on legislation extending the Terrorism Risk Insurance Act.
For first time since the program was enacted in November 2002, the TRIA legislation will explicitly call for coverage of group life insurance.
Further down the line, Congress is expected to hold hearings on various insurance regulatory reform issues. It will also consider a full range of health insurance issues, such as inclusion of Long Term Care insurance in cafeteria plans; mental health parity legislation; adequate funding for the federal state High Risk Pools program; and legislation outlawing discrimination based on genetics.
Additionally, the insurance industry remains on high alert in anticipation that Congress will at least review life insurance tax benefit issues as it considers how to pay for an extension of legislation reducing the burden of the alternative minimum tax on the middle class.
The Senate is also expected to deal with H.R. 2831, the Lilly Ledbetter Fair Pay Act, which would reverse a 5-4 Supreme Court decision and establish a paycheck rule for filing wage discrimination cases under the Civil Rights Act.
The legislation, which narrowly passed the House in July, would consider each paycheck to be a separate discriminatory act if the paycheck is less than it otherwise would have been due to the employee’s sex, race, color, religion or national origin.
The Sept. 5 hearing by the Senate Aging Committee will deal with the suitability of annuities for seniors, and whether there should be a separate designation for those eligible to market these products to seniors.
Commenting on the hearing, Jack Dolan, a spokesman for the American Council of Life Insurance, said that as it relates to the issue of credentialing, “the confusion caused by the myriad of delegations for insurance professionals certainly needs to be addressed.”
But, he added, “It needs to be made clear that deferred annuities can certainly play an important and necessary part in the financial plans of certain retirees.”
The industry also expects an early legislative hearing on Miller’s fee disclosure bill, with a markup and House floor action on such legislation before Thanksgiving.
Reiterating a general financial services industry position, Dolan noted there is a great deal of congressional interest in increased disclosure of fees for 401(k) plans to participants. “We are all for transparency and disclosure, but what is most important is for plan participants is to receive meaningful information they can understand. Overwhelming participants with information can truly be detrimental.
“Voluminous disclosures can turn people off. Congress needs to provide incentives for plan participants to fully understand the ramifications of their investments,” Dolan said.
The TRIA bill will mark a major forward step for life insurers, who have been battling since 2002 to be included in the program. But, despite the fact the House is likely to pass the bill overwhelmingly before Sept. 12, “Getting the Senate to include group life coverage will be hard,” Dolan said. He said it is also uncertain how the Senate will treat the language in the House limiting use of travel plans in underwriting insurance policies.
Dolan said it is likely the Senate will try to bring its TRIA bill, which is expected to be more limited in scope than the House bill, to the floor before Thanksgiving so that work can be completed on the extension bill before the program expires Dec. 31.
The House Financial Services Committee is also expected to hold several hearings on insurance regulatory issues this fall. But it is unclear whether one of the hearings will involve an airing of legislation introduced in July by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., calling for creating an optional federal charter.
Michael Kerley, senior vice president, federal government relations for the National Association of Insurance and Financial Advisers, expects to spend a great deal of time defending the industry’s position this fall as Congress deals with another interim fix to the alternative minimum tax.
The issue stems from the fact that because this tax is not indexed to inflation, the likelihood that it will ensnare a large portion of the middle class is regarded as a political nightmare to Congress, which annually seeks to postpone that impact until a more permanent fix can be negotiated.
“Once again, the Democratic leadership would like to fix or at least patch it before they finish up the year,” Kerley said. “But, where does the revenue come from to fix it?”
He said that cutting back on deferred compensation “doesn’t generate even close to enough revenue to do the job even if Congress chose to enact the version NAIFA opposed that originated in the Senate in connection with its small business tax package that was added to the minimum wage bill earlier this year.”
The House version is ever further from the revenue need, he said.
Regarding the AMT, “NAIFA will be on guard against cutting back any of the current tax incentives that individuals receive for covering their basic financial risks with life insurance, disability income and health insurance, annuities and long term care insurance to help pay what will likely be a hefty price tag to fix the AMT.”
He admitted that “Congressional tax writers are very creative and inventive, and I don’t want to put any ideas in their heads on where they might look for revenue from life insurance products.”
David Stertzer, CEO of the Association for Advanced Life Underwriting, sees that with the crowded congressional agenda, he says he “expects to see a one-year AMT patch at best.”
Stertzer also said that the industry must still be acutely aware of a renewed Senate Finance Committee proposal that would impose limits on non-qualified deferred compensation plans. “We anticipate the resurrection of a proposed cap on deferrals will be unveiled in September,” Stertzer said.
The proposal is expected to be part of a bill that would extend education tax breaks. Like previous legislation in the Senate, the proposal would set a $1 million limit on annual compensation deferrals. However, Stertzer expects the proposal may drop a previous provision that prohibited deferrals exceeding the 5-year average of an executive’s compensation and generally not count earnings from previous deferrals against the cap, change influenced by the lobbying efforts of AALU and other groups.
“While AALU helped educate Congress on the harmful provisions of the original legislation, a revised proposal is expected and we continue to be engaged on this issue” Stertzer noted.
The National Association of Health Underwriters will be working to seek adequate funding for the federal state High Risk Pools program, said John Greene, NAHU vice president of congressional affairs.
He said the House Labor-HHS appropriations bill provides $500 million for federally qualified state High Risk Pool programs, and “NAHU hopes that budget and appropriator members of Congress will come to support this important need in its 2008 fiscal year spending priorities.”
Another issue is mental health parity legislation. Greene said NAHU, and most of industry and insurers, support the Senate version of the legislation, S. 558, “a carefully crafted compromise that reaches the goal of parity, without substantially adding new mandates and raising costs to employers.”
He noted that after nearly two years of negotiations, agreement has been reached between business, insurers and mental health advocates with the leadership of Sens. Ted Kennedy, D-Mass., Peter Domenici, R-Ky. and Michael Enzi, R-Wyo., on this legislation.
Regarding genetic nondiscrimination, Greene said this is another issue that has been debated for a number of years. “Genetics is a complicated topic with potentially large negative ramifications if not properly structured,” he said. “Definitions matter in this legislation and word choice is critical to avoiding unintended consequence for coverage and the impact on the cost of insurance.”
Another NAHU priority is allowing employees to purchase their LTC policies through their employers on a pre-tax basis would save employees 20% to 30% on the premium, Greene said. “The policies are typically guaranteed issue to employees and, unlike health insurance, portable at the same premium if the employee changes jobs,” Greene explained.
“Time is running out to incentivize baby boomers who are still working to self-fund and protect the nest egg they have been building for a secure retirement,” he said.