Standing together

Therefore, in negotiations with Congress, the insurance industry is going to have to tell Congress that it is playing with a demographic time bomb if it considers watering down the attractiveness of the tax-advantaged products insurers sell.

For example, 10,000 people each day on average reach age 65, and that will continue for another 15-20 years, according to the Pew Research Center. That means a lot of demand for services that the government cannot support. The argument must be that life insurers are needed to help defuse this demographic time bomb and provide people with the financial security that comes with its products, i.e. annuities, life insurance and long-term-care.

 If history is any guide, there was a proposal in 2003 by Rep. William Thomas, R-Calif., then chairman of the tax-writing House Ways and Means Committee, to limit the tax advantages on inside buildup to $3 million.

The life insurance industry, usually divided as to its priorities, rose up as one to force Thomas to back down.

One possibility Congress and the industry might examine is eliminating tax-deferral for individuals whose income is above a certain level or who intend to use their policies for particular advanced planning applications.

“These proposals present challenges to our industry,” Boyle said.

One bit of recent history no one in the industry has brought up that should be brought to the attention of Congress is a provision of the Pension Modernization Act of 2006 (PMA).

Empowered by the PMA, the Department of Labor (DOL) in 2007 issued regulations that discourage sponsors from using fixed annuities or stable-value funds as the default option for people in 401(k) plans.

Despite intense industry opposition, the final DOL regulations ordered a phase-out of so-called “Guaranteed investment Contracts,” which offered a stable, if low, yield to people in these plans.

The alternative supported by the DOL was offering target date funds primarily offered by mutual funds as the preferred investment option.

In practice, target date funds didn’t turn out to be a viable alternative because the value of equities plunged as the nation went into deep recession starting in late 2007. Victims included people close to retirement who lost the opportunity to recoup their investment as the markets stabilized and then started to grow, in most cases starting in the second half of 2009.

Thus, a united industry must use the so-called qualified default investment alternative  disaster to illustrate the critical role it plays in ensuring that people have the funds to support a concern-free retirement.