Obscured by the intense debate over the shape of healthcare reform legislation, congressmen returning to work Sept. 8 must also deal promptly with the future of the estate tax; otherwise, without congressional action, the levy falls to zero in January before returning to 2001 levels in 2011.
Besides the estate tax, Congress will be dealing with a whole host of issues under the category of regulatory reform.
In general, industry lobbyists and others believe that any action this fall on insurance issues, other than the estate tax, will be limited to House consideration on a bill-by-bill basis of the components of financial services regulatory reform.
Senate action is expected to take place in one large measure sometime next year.
Financial modernization issues that will be on the congressional agenda include: whether to put insurance products within the scope of a proposed Consumer Financial Protection Agency; the scope of the authority of a proposed systemic regulator; expanding the authority of federal regulators to deal with troubled financial institutions beyond banks to insurers and securities firms; and the role of the federal government going forward in regulating the business of insurance.
Two proposals designed to do this would create an optional federal charter and an Office of National Insurance. Other legislative proposals deal with reforming and modernizing the surplus lines and reinsurance industries. Another bill would re-create the National Association of Registered Agents and Brokers.
Within the same category, Congress is debating how to improve regulation of derivatives in the wake of the problems at American International Group and at banking and securities firms.
Additionally, legislation that would set new limits on executive compensation and deferred compensation plans is also under discussion. The House has already passed legislation dealing with executive comp, although the Senate has not yet acted.
These two issues are of particular concern to life insurers. According to Steve Brostoff, a spokesman for the American Council of Life Insurers, life companies are major end-users of derivatives, “which are very useful instruments in managing risk” of insurance companies.
ACLI would support federal regulation of the derivatives market and marketplace professionals, Brostoff says. And, federal regulators should have the ultimate authority to resolve conflicts between state regulation of the derivatives market and marketplace professionals, he adds.
At the same time, the functional regulator of life insurance companies, whether state-based or federal, should retain jurisdiction over life insurers’ use of derivatives, Brostoff says.
As to the deferred compensation issue, it impacts life insurers and agents as both consumers and marketers of compensation products, industry officials said.
This issue will be taken up two different ways, through financial services regulatory reform, and in dealing with comprehensive tax reform mandated by the expiration next year of the 2001 tax cuts.
Officials of the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors have consistently urged Congress to be mindful that offering deferred comp arrangements to employees of a company is good for employees and the company. “And when these are paid out,” NAIFA officials say, “the government ultimately gets the tax it is due.”
Both AALU and NAIFA are urging Congress to keep the current tax rules in place, officials say.
Officials of AALU and NAIFA believe Congress is most likely this fall to decide to extend 2009 estate tax rates for one year as members continue to seek consensus for comprehensive estate tax reform.