Congressional efforts to secure more than $3.2 trillion in new revenue by rolling back financial services industry tax benefits could be realized if advisors don’t make their voices heard on Capitol Hill next year.
That was the overriding theme of a Legislative Forum at the 2014 Career Conference and Annual Meeting of the National Association of Insurance and Financial Advisors, held in San Diego September 6-8. A highlight of the three-day gathering, the general session brought together NAIFA’s 9-member government relations team to explore industry threats. Among them: a myriad of tax reform proposals, SEC and DOL fiduciary standards under consideration, and additional state-imposed regulations.
Something to cheer
The general session kicked off on a positive note with an update on legislation in the making since 2013 — NARAB II — that would streamline agent licensing across state lines.
“We have good news to share: NARAB II is included in both the House and Senate versions of legislation that must be done by end of year so that the Terrorism Risk Insurance Act—TRIA—is reauthorized,” said Jill Hoffman, NAIfA’s assistant vice president of government relations. “So our chances for success are very good.”
The National Association of Registered Agents and Brokers Reform Act of 2013 (H.R. 1155), a bill introduced into the House during the 113th Congress, is intended to reduce insurers’ regulatory costs of complying with multiple states’ licensing requirements. NARAB would establish independent qualifications for membership in the organization. Thereafter, NARAB member-producers licensed to do business in their home state would pay a fee to each additional state where they wish to do business.
Though the legislation looks like a done deal, implementation of the act could hit some snags. Scott Sinder an outside counsel for NAIFA at Steptoe & Johnson, noted that the president will appoint NARAB’s 13-member board of directors, including 8 state regulators and 5 non-regulators, the latter potentially including (or not) industry representatives.
“We’ll want a seat on the board,” said Sinder. “Our goal will be to ensure that [NARAB’s] executive director understands our pieces of the business, how they operate and what we need from the licensure process.
“We’ll want to make certain the qualifications are good for our members and in sync with FINRA registration requirements,” he added. Sinder observed also that NARAB’s funding will depend entirely on private capital raised by the board and the executive director; the legislation prohibits the use of federal loans. The legislation also calls for the association to be up and running within two years of its enactment—a “tight timeframe” for the industry, said Sinder.
Agents and brokers will need to mindful, too, of provisions of the bill that could prevent them from operating across state lines. These include a 10-day “look-back” period during which a regulator could seek to block (subject to NARAB’s approval) a producer’s license. Licensing applicants will also be subject to a criminal background check.
The Legislative Forum then turned to a perennial issue for NAIFA members: taxation of the tax-favored treatment of life insurance, as well as of other protection and financial savings vehicles near and dear to the industry. The topic is especially of concern now because Congress is expected to take up a debate on tax reform in 2015. And north of $3.2 trillion in so-called tax expenditures are at stake.
Diane Boyle, vice President of federal government relations, outlined a laundry list of products that could get the axe under the Taxation Expenditures Report, issued by Congress’ Joint Committee on Taxation. The biggest of these include tax benefits connected with employer health and long-term care premiums ($785.1 billion), capital gains/long-term dividends ($632.8 billion) and 401(k)/other defined contribution plans ($399 billion).
Life insurance and annuity inside build-up ($158.1 billion), traditional IRAs ($69.5 billion), Roth IRAs (30.2 billion), accident/disability income insurance ($21.3 billion) and group term life insurance ($16.8 billion) add another $295.9 billion to the mix.
“The industry has a tremendous amount at stake,” said Boyle. “Policymakers scan [the JCT] list for ways to pay for comprehensive tax reform, lower tax rates, reduce the federal deficit, simplify the tax code or pay for other policy decisions.”
The last is not just a hypothetical. In June, she noted, the Senate Finance Committee unveiled a plan to pay for the Federal Highway Trust Fund, including almost $4 billion to be secured by clamping down on tax-advantaged “stretch IRAs.” After lobbying by NAIFA and sister organizations, the Senate removed the stretch IRA provision from legislation on the trust fund. If the tax reform discussion draft, spearheaded by House, Ways and Means Committee Chairman David Camp (R-Mich.), survives Congressional scrutiny, the final legislation could prove ruinous to Americans trying to save for retirement, plan for the future and protect against financial risks, Boyle warned.
She noted that about a third of Americans have no retirement savings, including almost 70 percent of 18- to 29-year-olds. Also, nearly half (46 percent) of middle market consumers don’t own individual life insurance.
Boyle added the industry’s products are particularly attractive targets as additional sources of revenue because they collectively account (including 5 of the top 10) for nearly 45 percent of all tax expenditures.
“Other [non-financial services] tax expenditures are much easier to understand than ours, putting our industry at a greater risk,” said Boyle. “This is why it’s so important for us to continually educate policymakers against making changes that would burden families and businesses and hurt the economy. Industry unity has been and will be our key to success.”