Many Industry Items Before Congress, But The Problem Is Time

Gus Comiskey, president of the AALU, says his group is pushing strongly for the COLI-BOLI provisions because "they codify best industry practices and assure that corporate-owned life insurance is used responsibly for the benefit of employees, employers and the general public."

While COLI-BOLI has been under heavy fire, mainly from Democrats, Comiskey argues that COLI is a good product because it "protects businesses and the jobs they provide, and facilitates important employee benefits. The provisions will lock in appropriate standards for the products use and enable planning with greater certainty."

There are other provisions of interest to the life insurance industry tucked into other Senate or House versions of the FSC/ETI bill. For example, the House version of the legislation provides statutory protection for the first time for one retirement product, so-called "Rabbi trusts." Rabbi trusts, named for the no-action letter the IRS used to sanction their use because it involved a religious leader, are deferred compensation plans for executives. The Senate bill also protects rabbi trusts.

There are two aspects of the Senate legislation that continue to cause concern. One involves a limitation on the investment options for nonqualified deferred compensation plans. Another expands the authority of the Department of Treasury to issue regulations on NQDC. Since neither of these provisions was included in NQDC legislation that passed in the House, they will be subject to discussion during the conference of the bill. The language in the Senate bill limits the investment options for these plans. It also contains investor control provisions that say employers must only provide a menu of investment choices to executives that are found in the employee benefit plans for all employees.

An ACLI staff official says that while the trade group is concerned about the provisions, "we continue to work with both House and Senate staff on these outstanding matters." The specific concern is with the investor control issues, the staff official says.

Comiskey of the AALU says his group generally supports the NQDC language "because it provides greater certainty to clients." Comiskey says that on the deferred compensation language, "we continue to provide input on various provisions and on transition and effective date issues to try to make sure the legislation does not unfairly affect existing plans and does not impair planning during the remainder of this year."

The bill also completes the loop on phase-out of a provision similar to Sec. 815 affecting stock companies. That provision, Sec. 809, imposes a tax on mutual life insurers that guarantees that stock life insurers would not be disadvantaged by what was regarded as the dominant part of the life insurance industry when enacted in 1984. Sec. 809 was phased out effective at the beginning of 2005 in pension legislation passed by the Congress in April. The provision included in the Senate and House versions of FSC/ETI suspends Sec. 809 for 2004.

Suspending Sec. 815 of the IRS Code is likely to trigger some divestments and consolidations within the life industry. The provision suspends a tax on the policyholder surplus accounts maintained by mature stock companies. For example, the legislation is being lobbied heavily by Citigroup, which, many in the industry speculate, would use the suspension period to divest itself of Primerica. According to industry lobbyists, Primerica has the largest potential tax liability under Sec. 815. And Cigna would like to use it to reduce its tax bill from the sale of its retirement benefits administration unit to Prudential, which was completed March 31. But it would also benefit other stock companies.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 3, 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.