Filed Under:Life Insurance, Life Products

NAIFA: Inside build-up will escape tax reform

The 1,500-plus assembled attendees at the National Association of Insurance and Financial Advisors' annual meeting had reason to applause Monday.

"The word is not yet final, but we are told that inside build-up will not be part of the pending tax reform legislation," declared Danea Kehoe, an outside counsel for NAIFA at DBK Consulting.

Official or not — Kehoe's comments, a NAIFA spokesperson later clarified, were based on "conversations" between NAIFA's government relations team, Congressional members and their staffs — the announcement brought a measure of relief to NAIFA members during Monday's Legislative Forum. A highlight of the four-day gathering, the forum featured NAIFA's government relations team, representatives of whom examined the myriad legislative and regulatory issues of concern to NAIFA.

The sentiment of Congress on these questions, said Patrick Raffaniello, an outside counsel at Raffaniello & Associates, will hinge in some measure on the results of the 2014 midterm elections. Democrats, who now hold a 55- to 44-seat majority in the Senate, stand to lose the most seats. Twenty-three of its members stand for reelection next year, as compared to 10 Republican senators. In the House, the GOP holds a solid 234- to 201-seat majority.

How will the elections play out? If history is any guide, the Democrats are "likely to lose seats in both houses of Congress," said Raffaniello. "In the House, the Republicans should hold onto their majority, mostly because of redistricting.

"The Republican House seats are really safe," he adds. "But if the GOP doesn't get control of the budget and the debt ceiling, then their election prospects could change."

Whatever the make-up of the next Congress, NAIFA remains committed to securing bipartisan support for a host a legislative initiatives. Among these, said Diane Boyle, vice president of Federal Government Relations for NAIFA, the association is committed to reforms that assure private sector choices of affordable health care plans through, among other vehicles, the state exchanges established by the Patient Protection and Affordable Care Act. It's not evident, however, that the exchanges are ready for prime time.

Scott Sinder, an outside council at Steptoe & Johnson, noted that electronic enrollment for a number of federally run and state-hosted exchanges will be delayed a month or longer due to technical glitches. 

Technology issues aside, questions remain as to Americans' knowledge about exchanges and the health care law in general. A poll cited by Sinder observes that 42 percent of Americans are "unaware of the status" of the PPACA. Nearly one in five believes the act has been repealed by Congress and is no longer law (12 percent) or that the Supreme Court overturned PPACA (7 percent).

Other stumbling blocks could derail a main objective of the health care law: achieving something close to universal coverage of the American population. Absent action by Congress, the individual mandate will take effect on Jan. 1. But Johnson observed there is no enforcement mechanism at the employer level: Businesses aren't required to report to the government what health plans their employees have access to. Plus the IRS has no funds to enforce the individual mandate.

A bigger problem, said Sinder, is the so-called Medicaid donut hole: the absence of government-financed coverage for individuals who don't qualify for:

  1. Medicaid (those who earn up to one-third of the federal poverty line for a single person and up to two-thirds of the federal poverty line for families); or
  2. Subsidies under the healthcare law.

When passed, PPACA was supposed to resolve this issue by requiring states to expand Medicaid coverage to 133 percent of the federal poverty level. But since the Supreme ruled this provision of PPACA unconstitutional, 21 states — all led by Republican governors — have elected not to expand coverage. The result: Up to 30 million Americans may be not be able to pay for coverage.

"If you live in Texas, and you're at 80 percent of the federal poverty line, you won't have access to expanded Medicaid" said Sinder. "And you don't have access to a federal subsidy to buy insurance. That's a problem."

A related problem, he added, is the health care law's treatment of nonAmericans who are legal residents of the U.S. Because these individuals cannot apply for Medicaid, they're eligible for a federal subsidy down to zero percent of the federal poverty line — even if, as in the example involving a U.S. citizen, they make 80 percent of the federal poverty line.

That a nonresident is eligible for federal subsidy to buy health insurance whereas a U.S. citizen in the same financial situation cannot is, said Sinder, not only a political problem, but also a constitutional one.

Yet a bigger problem, he added, is the legality of securing subsidies through the 27 federally established state exchanges. The way the health care law now reads, said Sinder, only state-run exchanges can offer such subsidies.

On Oct. 21, he noted, a federal district court in D.C. will hear arguments on the issue. If the court opines that subsidies on the 27 federal exchanges are not permitted then, said Sinder, "chaos" will ensue, requiring revisions to the law to fix the problem.

Turning to financial services policy, NAIFA Assistant Vice President of Federal Government Relations, Jill Hoffman, flagged progress toward federal licensing of agents and brokers as a positive development. NARAB — the National Association of Registered Agents and Brokers — is spearheading legislation, NARAB II, that would allow producers to sell insurance across state lines use a single nonresident license.

Earlier this month, said Hoffman, the House passed the proposed legislation by an overwhelming 397 to 6 majority. Given also the unanimous backing of the state insurance commissioners, she expressed confidence the legislation will ultimately become law.

To reach a vote on the Senate floor, however, the bill's backers will have to overcome opposition by two senators. One of them, Sen. Tom Coburn, R-Okla., still opposes the measure, believing the bill should be revised to allow states to opt out of the federal licensing regime.

On the subject of retirement security policy, NAIFA Director of Federal Relations, Judi Carsrud, said that several legislative efforts are underway that will help NAIFA members work with baby boomers, a population that will be retiring to the tune of 10,000 people daily until 2030.

In the Senate, the SAFER Plan, a bill proposed by Sen. Orin Hatch, R-Utah, aims to address the problem of unfunded or underfunded retirement plans of state and local governments. The bill uses individual deferred annuities, owned by an individual plan participant, to fund each year's liability for retirement.

The legislation, added Carsrud, promises to simplify administration and reduce compliance costs for 401(k)-type plans. The bill also provides for a "starter 401(k)" plan, whereby employees can make contributions at higher levels of funding than are available through IRA accounts.

The House, said Carsrud, is now considering a pension simplification bill, introduced by Richard Neal, D-Mass., that NAIFA hopes will be included in tax reform proposals. The bill offers incentives to boost plan participation rates and higher levels of contributions.

The Department of Labor, she added, also proposed a rule that would require statements of IRA and 401(k) plan participants to show lifetime monthly income amounts using both current and projected account balances. The rule's purpose, as with the Senate and House bills, is to encourage greater savings by plan participants.

"Our comments [on the proposal] were generally in support of the disclosure statements," said Carsrud. "But we emphasized that we want to be sure employers don't have additional liability in the event that these projections differ from reality."

Turning to a potentially more contentious proposal — a still to be issued Department of Labor rule concerning the standard of care required of agents and brokers who offer investment advice on retirement accounts and pension plans — Carsrud said NAIFA views the DOL's efforts as unnecessary, given current consumer safeguard. In its earlier iteration, agents and brokers would have been held to a fiduciary standard of care, and thus prevented them from receiving third-party compensation.

"We've been working with Congress and with industry partners to alert lawmakers that a rule that eliminates the broker-dealer model would be disadvantageous to the very people it purports to help," said Carsrud. "The current disclosure rules adequately address, in our view, potential conflicts of interest.

"Eliminating the broker-dealer model, one that's used by 98 percent of investors with retirement accounts valued at under $25,000, is detrimental," she added. "The DOL is trying to fix a problem that doesn't exist. 

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