Tax issues–especially protecting current policy on the inside buildup in life insurance–and enactment of legislation creating an optional federal charter, dominate the legislative priorities of the life insurance industry for 2008.
However, given that, “all legislation that is debated in 2008 will be viewed through the prism of how it will affect both parties’ chances to win the White House in November,” says David Stertzer, CEO of the Association for Advanced Life Underwriting. Substantive action on tax legislation or anything else is unlikely to occur, officials of various trade groups agree.
“While we have seen tax bills completed in an election year over my last 20 plus years of working in Washington,” Stertzer says, “the stakes surrounding this presidential election and the partisan fervor we have already seen make me believe it will be extremely difficult for a major tax bill to be enacted next year.”
But he says that deferred comp and estate taxes will be discussed at length in 2008.
In fact, says Kim Dorgan, executive vice president, federal relations, for the American Council of Life Insurers, because of the 2008 presidential elections, “we expect most congressional activity to take place between January and July.”
She says Congress will likely adjourn for August and then return for a month before adjourning again in October ahead of the elections.
In general, Dorgan says, “The pay-as-you-go environment in Congress will continue in 2008.” That means “that Congress may look for sources of revenue to pay for certain programs,” meaning, as Dorgan explains, that ACLI–and probably all other insurance industry trade groups–”will keep a close eye on any [tax] legislation that could affect the industry.”
National Association of Insurance and Financial Advisers officials say that a key problem for 2008 and beyond is working with a successor to Rep. Jim McCrery, R-La., ranking minority member of the House Ways and Means Committee.
McCrery said in early December that he did not plan to run for reelection and is likely to give up his role as chief spokesman for Republicans on taxes in the House, according to Michael Kerley, senior vice president of federal government relations for NAIFA. It is unclear who will succeed McCrery as ranking member, and when the transition will occur.
“McCrery’s decision to retire is a new factor that must be added to the mix,” Kerley says. “When there are new players, there is a new game.”
Kerley calls it a “major loss,” because McCrery “has a lot of expertise on insurance tax issues.
“NAIFA has spent a lot of time with McCrery and his staff educating them on inside buildup and on proposed taxes that will have either a direct or indirect affect on inside buildup,” Kerley says.
He notes that the 1990 Treasury initiative of “getting at” inside buildup in life insurance and annuities through taxes on “deferred acquisition costs” is one taxing tool about which NAIFA remains ever-vigilant.
Inside buildup must be protected, Kerley says, noting that annuities provide the only guaranteed-income-for-life product for retirees, a key industry selling point.
And, he says, “non-qualified deferred compensation packages are always at risk.”
Alex DelPizzo, vice president and outside counsel of the National Association of Independent Life Brokerage Agencies at lobbying group Winning Strategies, says, “The industry is going to see Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, pursue his ‘mother of all tax reform proposals” in 2008.
“Anything you see will be pre-positioning for the next president,” DelPizzo says. “The next president will set the new tax agenda, with the Bush tax cuts expiring.”
Besides taxes, an allied issue, retirement security legislation, will also be on the minds of trade groups, affecting such products as long-term care, annuities and 401(k)s.
Federal regulators also have several issues of great importance to the industry that remain to be dealt with, two of which concern the Pension Protection Act of 2006.
For example, the Department of Labor still must issue final regulations dealing with the selection of an annuity provider by an employer, according to ACLI officials.
One key issue is removing barriers that bar employers from making a lifetime annuity a distribution option at retirement. “That was included in the bill, but no final rule has been issued to ease the rules from turning the funds in a 401(k) into an annuity,” says Jack Dolan, an ACLI spokesman. “The ACLI continues to work with the DOL so that the rules are conducive to use of annuities in 401(k) and other annuity plans,” he says.
Another issue outstanding is rules relating to corporate-owned life insurance that must be issued by the Treasury Department. The issue was dealt with in the Pension Protection Act, but “we are still working with Treasury officials on guidance and clarification as to what employers must do to comply with the notice and consent provisions on sale of COLI,” Dolan says.