An optional federal charter for life insurers appears to be “inevitable” in the next Congress, according to officials of life insurance trade groups, but they caution the industry must remain vigilant to ensure Congress doesn’t overdo federal regulation.
“We think an OFC has moved from a possibility, maybe even an probability, to an inevitability [in the next Congress],” said Mike Hunter, chief operating officer of the American Council of Life Insurers during a post-election webcast sponsored by the Association for Advanced Life Underwriting.
“Clearly, there is going to be far-reaching financial regulatory reform that is going to occur in Congress over the next year or two,” he added
But, cautioned Ken Kies, AALU senior counsel and a former chief of staff of the Congressional Joint Committee on Taxation, the industry “must be on our toes to make sure Congress doesn’t overdo it.
“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.
There “is a real risk that could happen,” he added. “We must be very involved in helping to shape a bill so we don’t end up with a regulatory environment so burdensome that it stifles normal business activity.”
During times like these, he said, “there is an eagerness to do dramatic things.”
That could spill over into a number of areas, he added, noting that “executive compensation is getting a lot of attention.”
He also cited demands for stronger information reporting. “We must ensure that the final [regulatory reform legislation] product doesn’t impede the ability of the industry to do normal business,” he said.
Despite the fact that the industry has been dealing predominately with Republicans over the last 8 years, another advisor, Steve Richetti, who worked in the Clinton White House, said the industry “will have friendly ears” in the incoming Obama administration.
Richetti, an adviser to the Obama campaign, said the Obama staffers coming in are “seasoned, ready and experienced, particularly in the economic space.”
In other comments during the webcast, 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.
But, if it decides to do that, it is likely to extend the 2009 estate tax rate of 45%, with a $3.5 million per-person exemption, into 2010, so that it can decide what to do with the expiring, multi-trillion dollar 2001 and 2003 tax cuts in a more deliberate manner.
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 passed by Congress within the next 6 to 8 months.
Such an interim solution would pass muster with the so-called “blue dog” conservative Democrats, because extension of the estate tax into 2010, when it was supposed to be phased out, would raise $40 billion, Cadin said.
David Stertzer, AALU’s CEO, noted at that point, that what Cadin was predicting represented 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, observing that “the goal posts have moved.”
The officials also told members they will be working hard to ensure that the public indignation over excessive pay to Wall Street executives doesn’t force Congress to act against legitimate executive compensation programs which insurance advisors create for their clients, nor against non-qualified deferred compensation plans that benefit mid-level employees.
“We need to make sure that the public and media understand there are legitimate executive compensation practices that AALU members are very helpful to companies in implementing.
“The public and media shouldn’t be painting with one brush [the idea] that every executive compensation package is an offensive thing,” Kies said. “We must communicate the important role executive compensation pays in retaining a company’s quality people.”
Equally important is not getting non-qualified deferred compensation plans caught up in the public indignation, he said.
“Our role in helping fund deferred non-qualified compensation plans helps provide protection not only to top people but midl-level people as well,” he 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 noted in his comments that the public outcry Congress is hearing stems from the fact that Wall Street executives were paid “something like $300 billion in comp over last couple of years, and current losses [by their companies] now equal those payments.”