Senate Tax Bill Protects Rabbi Trusts

One provision would accelerate repeal of Section 809 of the tax code, which imposes an additional tax on mutual companies by reference to the earnings of stock companies.

Section 809 is scheduled to be repealed beginning in 2005, but under the new provision, its repeal would be made effective beginning in 2004.

In addition, the legislation would suspend Section 815 of the tax code for both 2004 and 2005. Section 815 deals with policyholder surplus accounts held by stock companies.

PSAs were established by stock companies between 1959 and 1984, when life insurance taxation was significantly reformed. Since then, the PSAs have been frozen. However, distributions from PSAs can still be taxed under certain circumstances.

In the House, legislation was approved stating that up to $500 in unused health benefits in cafeteria plans and flexible spending accounts could be contributed to a health savings account.

By a 273-152 vote, the House approved H.R. 4279, which says the contributions will not affect the tax-exempt status of cafeteria plans or flexible spending accounts.

The House also approved H.R. 4280, which is the latest attempt to pursue medical liability reform. Passing in a largely party line 229-197 vote, the bill places a $250,000 cap on noneconomic damages, such as pain and suffering.

In addition, it limits punitive damages to $250,000 or 2 times the amount of compensatory damages, whichever is greater.

Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 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.