Fight Goes On Over Extending Dividend Tax Cuts To Annuities

The new proposal says the value of the economic benefits provided to the non-owner for a taxable year equals the cost of any current life insurance protection provided to the non-owner, the amount of policy cash value to which the non-owner has current access and the value of any other economic benefits provided to the non-owner.

Bob Plybon, president of the Association for Advanced Life Underwriting, Washington, says AALU has been meeting with Treasury Department officials on the issue of how split-dollar arrangements should be taxed. He says AALU believes the only value in equity is the value of the death benefits.

AALU is disappointed, Plybon says, that the proposed regulations take a different approach. However, he says, while AALU disagrees with Treasury philosophically, he does not believe the proposal, if adopted, would have a significant impact on the market.

He notes that the proposed regulation applies only to equity endorsement arrangements, which are not sold regularly.

Most split-dollar arrangements, Plybon says, are collateral assignment.

Laurie Lewis, chief counsel for federal taxes with ACLI, agrees. "The sky is not falling," she says.

Lewis adds that the proposed regulations need to be analyzed and that ACLI will likely have a long list of comments and questions.

But she notes that Treasury will collect and consider comments on the proposed regulations before finalizing them.

During this process, she says, the industry will see if there is room to modify the proposal.

Treasury says comments on the proposal must be filed by July 8, 2003. A hearing on the proposal is set for July 29.

Finally, ACLI is praising the House for approving legislation that would allow life insurers and other firms that provide services to defined contribution plans to also offer investment advice to plan participants.

The legislation, H.R. 1000, allows service firms to provide advice subject to strict disclosure requirements.

ACLI President Frank Keating says that currently, plan participants are challenged to make sense of stock and bond markets that puzzle even the most learned economists.

"It is only fair that Congress help plan participants by making investment advice more accessible," Keating says.

The American Benefits Council, Washington, an employers group, also praised H.R. 1000.

"Pension policy, with regard to company stock in retirement plans, should ensure that 401(k) participants have the information, education and professional advice necessary to exercise wisely their responsibility as savers and investors," says Council President James A. Klein.

Similar legislation passed the House last year, but the Senate never acted on the bill.

Reproduced from National Underwriter Edition, May 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.