Industry Pores Over Text Of Major New Pension Bill

Legislative affairs specialists at the groups are speculating that the specific provisions of any pension system overhaul bill that gets through Congress may resemble the provisions now in H.R. 4.

A section that would extend the pension and retirement benefit enhancements created by the Economic Growth and Tax Relief Reconciliation Act of 2001 is a "big positive," Kerley says.

Other helpful bill provisions include a corporate-owned life insurance section and a section that would encourage insurers to add long term care benefits to annuities, Kerley says.

The pension bill would encourage employers to enroll employees in 401(k) plans automatically, and an investment advice provision would create an exemption from the prohibited transaction exemption for investment advice provided to employer-sponsored retirement plans through a computer model certified by an independent party.

"An exemption for advice provided by an adviser whose compensation does not vary with the investments selected would be available to both employer-sponsored plans and [individual retirement accounts]," according to a section-by-section summary of the bill.

The section dealing with annuity LTC provisions would provide special tax treatment for the LTC component of a life insurance or annuity contract. The bill would let insureds use the cash value of an annuity-LTC contract to pay for LTC benefits. The bill also would allow for tax-free Section 1035 transfers of annuity contracts even if one contract has an LTC rider. Still another provision would treat the LTC rider as a separate contract for "certain purposes" under Internal Revenue Code Section 7702.

The tax rules for life insurance contracts would be similar.