The next Congress could give the life insurance industry a federal charter system–but participants in a discussion hosted by a group that backs the optional federal charter concept says the next Congress also could consider measures that would increase insurers’ regulatory burdens.
Life industry representatives talked about the insurance legislation climate during a recent post-election Webcast organized by the Association for Advanced Life Underwriting, Falls Church, Va.
Advocates of “optional federal charter” proposals want Congress to create a federal insurance regulator and let insurers, and producers, choose between state and federal regulation.
“We think an OFC has moved from a possibility, maybe even a probability, to an inevitability [in the next Congress],” Mike Hunter, chief operating officer of the American Council of Life Insurers, Washington, said during the AALU Webcast.
The AALU supports the concept of OFC legislation.
Due to the financial crisis, industry participants “must be on our toes to make sure that Congress doesn’t overdo it,” said Ken Kies, a member of the AALU counsel team who has served as chief of staff at the Congressional Joint Committee on Taxation.
“Congress has a habit when a problem comes up of sometimes going a little too far, and we have a huge problem here, so we don’t want to end up with something like a Sarbanes-Oxley Act on steroids,” Kies said.
Today, there “is a real risk that could happen,” Kies warned. “We must be very involved in helping to shape a bill so we don’t end up with a regulatory environment that is so burdensome that it stifles normal business activity.”
Congress could consider legislation affecting deferred compensation programs, Kies said.
“We need to make sure that the public and media understand that there are legitimate executive compensation practices that AALU members are very helpful to companies in implementing,” Kies said. “The public and media shouldn’t be painting with one brush [the idea] that every executive compensation package is an offensive thing. We must communicate the important role executive compensation pays in retaining a company’s quality people.”
Kies cited non-qualified deferred compensation plans as an example of arrangements that should be protected.
“Our role in helping fund deferred non-qualified compensation plans helps provide protection not only to top people but mid-level people as well,” Kies said. “We have a challenge here because ‘executive compensation’ has become a dirty two-word phase that evokes a lot of misinformation because of what Wall Street was paid over last couple of years.”
Kies said the public outcry Congress is hearing stems from the fact that Wall Street executive were paid “something like $300 billion in comp over last couple of years, and current losses [by their companies] now equal those payments.”
Also during the Webcast:
- Steve Ricchetti, a political consultant who is part of AALU’s counsel team and who has worked in the Clinton White House and served as executive director of congressional communications at the Blue Cross and Blue Shield Association, Chicago, said the insurance industry “will have friendly ears” in the incoming Obama administration.
Ricchetti, an advisor to the Obama campaign, said the Obama staffers that will be coming in are “seasoned, ready and experienced, particularly in the economic space.”
- AALU officials and outside advisors said Congress will move during the next two years to deal with “durable” estate tax reform, and might decide to delay final action on comprehensive tax legislation until 2010.
An interim step might involve extending the 45% 2009 estate tax rate, with a $3.5 million per-person exemption, into 2010.
Regarding the interim step, Marc Cadin, an AALU lobbyist, said extension of the 2009 estate tax rate into 2010 could be combined with limits on so-called “carried interest,” which hedge funds use to cut their taxes, and “perhaps middle class tax cuts,” such as an extension of the alternative minimum tax exemption, as a package to be passed by Congress within the next 6 to 8 months.
The interim solution would pass muster with the “blue dog” conservative Democrats, because extending the estate tax into 2010, when it was supposed to be phased out, would raise $40 billion, Cadin said.
AALU Chief Executive David Stertzer said that what Cadin was predicting represents a sea change from the early 2000s, when the Republican-dominated Congress moved to eliminate the estate tax despite the objections of Democrats.
“What used to be an unfair tax is now a fair tax,’ he said. “The goal posts have moved.”
CLARIFICATION: Earlier versions of this article described AALU’s support for OFC efforts with different wording. AALU is emphasizing that it has supported, supports and will continue to support OFC efforts.