Tax law changes proposed in a discussion draft of the U.S. House Ways and Means Committee could prove devastating to the industry, notably in respect to sales of permanent life insurance products used to fund non-qualified deferred compensation plans for business executives.

So warned the AALU executive leadership team during the opening general session of the association’s 2014 annual meeting, held in Washington, D.C., May 4-6. The gathering touched on tax policy issues of most concern to the industry, talking points that AALU members will be expected to take up when they meet with lawmakers on closing day of the conference, and on association-building efforts underway to make AALU a more powerful force on Capitol Hill.

“We are an integral part of the financial security of Americans — not part of the fiscal problems of the government,” said incoming AALU President Anthony Domino. “The state of our association is sound and stable, which is good because the environment in which we now operate is the most precarious we’ve seen in the last decade, if not the last generation.”

To prepare for comprehensive tax reform, he added, AALU has beefed up the “number and quality” of the organization’s relationships with Congressional leaders. AALU is also investing in resources to communicate its positions on tax and regulatory policies that impact the industry. Topping its message list: that life insurance is now taxed appropriately.

The product’s tax-favored treatment has been at risk, however, since the House Ways and Means Committee Chair David Camp (R-Mich.) released a 1,000 page-plus discussion draft earlier this year that, warned Domino, would “devastate” the life insurance profession. If enacted, the draft would levy $60 billion in new taxes on the industry and, insists AALU outgoing president Thomas Von Riesen, all but end the use of life insurance to fund non-qualified deferred compensation plans for business executives.

Riesen said that it would be dangerous to assume, as some Congressional-watchers have suggested, that the discussion draft is “dead on arrival.” That assumption hinges on the brief that something so contentious and complex as tax reform can’t be passed in a Congress that’s nearly paralyzed by partisan gridlock.

However real or remote the threat, Domino observed, AALU needs to increase its ranks and engage more members in the association’s advocacy efforts. Most prominent among these is the Tuesday meeting on Capitol Hill between AALU members, lawmakers and their staff.

When making the case to maintain the current tax regime governing the industry’s products, AALU’s leadership team urged members to address a list of talking points. Among them: That life insurance is wrongly labeled a tax expenditure because the product doesn’t produce revenue losses arising from special treatment under federal tax laws.

The association notes that no provision in the Internal Revenue Code excludes, exempts or deducts inside buildup — the cash value component of permanent life insurance policies — from gross income or imposes a preferential tax rate on gains actually received (or realized) by the policyholder.

In support of its tax position, AALU points out that life insurance is purchased with after-tax dollars. Gain on inside buildup is not taxed when held within the contract — consistent with the treatment of appreciation on stock or home value. If and when proceeds are received, ordinary income tax, not the preferential capital gains tax, is imposed.

Capping the list of talking points for AALU members going to the Hill is this: Throughout the 100-year history of the federal income tax system, gain from inside build-up has never been viewed as gross income until the policyholder receives the proceeds, typically through a sale or surrender of the contract.

Whether the AALU’s members can win over lawmakers with these talking points may, however, hinge less on the strength of the arguments than on whether they have enough members engaged in the political process to be a force to reckon with. AALU’s executive team acknowledged as much during the opening general session.

“Many in our profession — dare I say the overwhelming majority — fail to give back, oblivious to the risks,” said Domino, who also said that member engagement with AALU is akin to priming the pump of a water well.

“The well won’t run dry because people will always need financial protection,” he said. “It’s the deliver system that’s at risk — and we are at that system. If not preserved to protect it, we will dry out and be deemed non-functional. It’s our responsibility to ensure that doesn’t happen.”

Domino observed that fewer than 2,500 life insurance agents are now AALU members. And about one-third of members of all insurance-related organizations are fully engaged in protecting the industry on the policy front. In total, he said, fewer than 8,500 life insurance professional nationwide are engaged in corporate advocacy efforts.

That said, AALU is endeavoring to expand its membership rolls, though only after a difficult period. AALU CEO David Stertzer said the association failed to achieve its net growth target during 2012-2013 term — for the first time in five years — due to industry consolidation, corporate cost-cutting and an increase in the number of retiring members.

Since last fall, however, AALU has met or exceeded its monthly recruiting goals. And, as of this writing, the association was just 21 members shy of its target.

“More importantly, our retention rate is 93 percent, a rate we haven’t seen since 1995,” said Stertzer. “Retention is even higher — 98 percent — among members who have moved to our monthly automatic payment system.

“Membership growth is the number one area of focus for the AALU board and staff this year,” he added. “And our current results reflect this.”

To boost the organization’s appeal for those seeking professional development, Stertzer noted also that AALU has recently launched new products, including AALU Commentary, an online, members-only discussion site sponsored by the Ashton Group; and AALU360, which will avail affiliated producers of tools and techniques to hone their practices.

Adding financial muscle to its advocacy initiatives, AALU is now also on pace to raise more than $5 million for association-endorsed political candidates who support industry positions on legislation. The additional funding will also be leveraged to support AALU’s Ambassador program, the main driver of its advocacy efforts, as well AALU’s Legislative Circle Program and Impact Training initiative.

Graduates of these programs, among others, met with lawmakers over the course of five two-day meetings in 2013 to address policy issues of concern to the industry. Five more of these are planned for 2014.

In closing, Domino acknowledged that success in boosting the association’s ranks will also require adapting to the needs, technology-related or otherwise, of young advisors entering the profession.

“We must be the home of life insurance professionals who want to protect their clients from unreasonable government actions,” Domino said. “And we must grow our ranks. To win on these issues requires more people than just those in this room. To grow, we must first understand and embrace change.”