Industry Facing Crush Of Issues

Dealing with that issue on a long-term basis will likely start by mid-year.

Besides the estate tax, issues that might be involved as the country faces an escalating budget deficit are taxing inside buildup and non-qualified deferred compensation plans as well as tax rates going forward.

Industry officials are also seeking to educate both Congress and the administration on the difference between NQDC and emerging curbs on executive compensation, especially on companies that recently received aid from the government to prevent their insolvency.

At the same time, the industry, both companies and agents, are deeply concerned about efforts to "harmonize" the standard of care sellers of investment products must use in offering products to their customers.

Specifically, a provision in the financial services reform measure passed by the House in early December would give the Securities and Exchange Commission discretionary rulemaking authority to harmonize the standard of care investment advisers and brokers and dealers must provide to their customers when selling investment products.

Tom Currey, president of the National Association of Insurance and Financial Advisers, says the trade group "will fight to make sure regulation of agents insurance and securities activities remains configured to serve the best interests of the insured and investing public. This includes effective regulation of insurance agent activities."

A draft bill proposed by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, contains similar language.

At the same time, as Congress left after its longest session since 1897, Dodd and Sen. Richard Shelby, R-Ala., ranking minority member of the committee, issued a statement saying they were making progress on drafting bipartisan legislation and hoped to "resolve the remaining issues before we reconvene in January."

A priority for the American Council of Life Insurers and its members as 2010 begins is eliminating language in House financial services reform legislation that would engulf insurers in a systemic risk scheme that would mandate that all financial services companies with more than $50 billion in assets help prefund a resolution authority that would be used to wind down systemically risky institutions.

Jack Dolan, an ACLI spokesman, says "the life insurance industry is a poor fit for inclusion in this program."

What is particularly outrageous, he adds, "is the inclusion of life insurers in a pre-funded program."

Dolan says ACLI will also be lobbying for a Federal Insurance Office within the Treasury Department as the Senate takes up financial services reform. "At the same time we're not losing sight of the fact that a well-designed optional federal charter remains an ACLI priority," Dolan says.

"Financial services reform has numerous provisions that touch upon the industry's business," Dolan says. "So we'll be involved as the Senate considers its bill and we'll work to ensure our companies, producers and policyholders are not negatively impacted by their deliberations."

Another key priority for ACLI and NAIFA is passage of legislation that would require employers who provide defined contribution retirement plans to show participants annually the value of their retirement account and how that account translates into guaranteed monthly payments, based on age at retirement and other factors.

The bill was introduced in November by Sen. Jeff Bingaman, D-N.M., and Sen. Herb Kohl, D-Wis.

"The bill introduced by Sen. Bingaman recently provides a good idea of where we are heading: helping give workers the tools to plan properly for retirement," Dolan says.

This is also a priority for NAIFA.

"NAIFA anticipates an early effort to improve retirement savings incentives and rules," Currey says.

Regarding the estate tax, Sarah Spear, director of policy and public affairs at the Association for Advanced Life Underwriting, says, that timing and vehicle for the 2010 fix of the estate tax remain unclear. But the fix most likely will reinstate the estate tax at 2009 levels and retroactively apply the $3.5 million exemption level and 45% rate to January 1, 2010, she says.

AALU is preparing a memo, Spear says, with techniques and analysis of how best to manage a temporary repeal of the estate tax and retroactive application so that insurance professionals can best serve their clients.

The memo will address the constitutionality of retroactively extending the estate tax, managing estate tax returns for decedents who pass within the window frame of repeal, how to address the carryover basis rules, and other planning scenarios, she says.

"AALU has not wavered in our advocacy for permanent estate tax reform that includes reunification, portability, and indexing for inflation, and only in this rare lawmaking environment has this scenario occurred," she says. "We will continue to aggressively engage on this issue as reunification is the item that brings lawmakers together from both sides of the aisle both in the Senate and the House."

Spear notes that "no significant federal threats have emerged to the core tax treatment of life insurance products since the release of the Treasury 'Greenbook.'"

However, she cautions, in 2010 "we anticipate that broad tax reform will be addressed and several state fiscal dilemmas may lead to increased sources of tax revenue-including life insurance products."

She says AALU and other industry trade groups continue to work on a unified basis "to educate lawmakers and the general public on the important and valid business uses of life insurance."

Among the issues, she says, is that Corporate Owned Life Insurance is widely used by businesses on employees on which they have an insurable interest to keep businesses running after the death of a key owner or employee and to finance employee benefits, including broad-based health, disability, survivor and supplemental retirement benefits.

"The facts are that employers receive no tax deduction for paying COLI premiums and that employees bear no cost for COLI, yet reap substantial benefits," she says.

On NQDC, Spear says, "AALU continues to educate lawmakers and the general public on the differences between executive compensation and NQDC.

"NQDC is not just for the top executives; hundreds of thousands of upper and mid-level managers participate," she says.

On the issue of harmonizing the standard of care sellers of investment products must use, several industry trade groups sent a letter to Dodd and Shelby in early December asking that any Senate bill should replace the language giving the SEC authority to mandate such a standard with a provision calling for the SEC to conduct a detailed study of the issue.

The letter was written by officials of the AALU; NAIFA; and the National Association of Independent Life Brokerage Agencies.

They supported an earlier letter from the American College, which said the SEC report should be required to "deliver required rulemaking and clear legislative recommendations, as necessary, along with a detailed picture of the consequences of various courses of action."

The American College letter cautioned that the provision, if enacted, could impact distribution systems and consumer access for certain products, such as variable life insurance; could impose additional expenses on providers, "ultimately resulting in added costs passed on to lower and middle-market consumers;" and could decrease "significantly" the number of financial advisors.

The trade group letter also called the provision in the Dodd bill and the House bill "a radical departure from current law."